UAE Cabinet approves Sharia authority launch

The UAE Cabinet on Sunday approved the launch of a new Sharia Authority, a national regulator to set standards for Islamic finance products, according to the state news agency Wam.

The board will oversee the Islamic financial sector, approve financial products and set rules and principles for banking transactions in accordance with Islamic jurisprudence on finance.

The Central Bank will oversee and select the members of the new board. Financial institutions will contribute to the running of the board by paying fees to the Central Bank.

Currently, individual financial institutions run their own Sharia boards, which are groups of scholars who decide on whether individual products are consistent with Islamic jurisprudence on financial affairs.

The national regulator will not replace the Sharia boards of individual banks, but will be approve new products that have already received approval from individual Sharia boards.

Analysts have long pointed to the absence of a single regulator as an obstacle to the development of the Islamic finance sector in the UAE.

The lack of a national board means that disagreement on Sharia standards persists, as individual Sharia boards disagree on the Sharia-compliance of particular products.

Individual banks may market the same products differently, while some UAE banks use financial structures to underpin products that are not approved by Sharia scholars in other jurisdictions.

In a report published last year, Deloitte said that a national Sharia board could “reduce future disputes and increase transactions”.

Oman launched a national Sharia board in 2012, while Bank Negara Malaysia, the Malayasian central bank an​d the world’s largest individual issuer of sukuk, launched its national Sharia board in 1997.

The UAE board, which is modelled on the Malaysian board, will have “a wide remit when it comes to approving products”, and should make “customers’ lives a bit easier” by ensuring consistent Sharia standards across all products, a person familiar with the government’s plans said.

“It’s one of the key pillars of the Dubai Islamic Economy Strategy, and it has been a Central Bank priority since 2013, when work began on this.”

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Saudi Arabia to wean itself off oil as part of economic transformation plan

Prince Mohammed bin Salman, Saudi Arabia’s deputy crown prince, promised to build a national defence conglomerate, launch “the biggest IPO in history” and end the country’s reliance on oil revenues by 2020, as he announced new details of the long-awaited economic reform programme that was approved on Monday by King Salman and the Saudi cabinet.

In an interview broadcast on the Saudi-owned TV channel Al Arabiya, Prince Mohammed, who is now in charge of economic policy, offered up a handful of new details of Saudi Vision 2030, policies intended to shore up the Gulf’s largest economy after it has been battered by declining world oil prices.

Oil dependence will end by 2020, Prince Mohammed said in the interview. “The kingdom can live in 2020 without any dependence on oil … The Saudi addiction to oil has disturbed development of many sectors in past years,” he said.

Among the proposals was a plan to launch a new defence company, combining Saudi industries under a single company that would be floated on the Saudi stock exchange by next year.

“How [can] we be the world’s third-largest spender on arms but [not] have a military industry?” Prince Mohammed said. “We are now about to establish a holding company for the military industries 100 per cent owned by the government that will be listed later in the Saudi market.”

More details emerged on the listing of state-owned oil giant Saudi Aramco. The country plans to list less than 5 per cent of Aramco, the conglomerate that the deputy crown prince said was worth more than US$2 trillion. Ownership of the remaining stake will be transferred to the Public Investment Fund, a sovereign wealth fund founded in 1971, whose assets will grow from the current $5 billion to more than $2 trillion under the prince’s plan.

The plans would help improve transparency at Aramco, Prince Mohammed said. He previously said that floating a stake in the company would “counter corruption, if any, that may be circling around Aramco”.

“People in the past used to be upset that Aramco’s files and data are not announced, unclear and not transparent,” he said in on Monday’s interview. “If Aramco is listed, this means it must announce its [finances], it must declare every quarter,” he said. “It will become under the supervision of all Saudi banks and all Saudi analysts and thinkers. Or rather, all world banks and all research and planning centres in the world will intensively observe Aramco.” Saudi Arabia is also set to introduce a green card programme, modelled after the visa programme of the same name in the United States, under which foreigners are to be granted residency and employment rights in exchange for paying fees. The scheme, which is to be implemented within five years, “will allow Muslims and Arabs to live in Saudi Arabia for a long time and will be a source for revenue for the government”, Prince Mohammed said in the interview.

The country’s finances have been pummelled by the collapse in oil prices from above $110 per barrel in June 2014 to just over $40 per barrel now. At one point last year, the Saudi government worried that it would deplete all of its then-$700bn in foreign reserves in as little as two years, the prince said in a recent interview with Bloomberg.

It has since slowed its rate of asset depletion after an austerity budget in December, which aimed to cut spending by $98bn per year. The country will earn a further $100bn in new revenues by 2020 under the Vision 2030 plan, the deputy crown prince previously said.

“It’s a very ambitious strategy, far-reaching and comprehensive, and we think that is what is required given the scale of the challenge that they face,” said Masood Ahmed, the IMF’s chief Middle East economist, of the considered reforms.

“It is very useful to lay out a vision because it helps to give the population a destination in terms of where and how the economy is going, why you need to make the changes and it gives a framework of the different changes that have to be made and policies that have to be implemented,” he said.

The country’s Tadawul All Share Index rose by 2.5 per cent on Monday, with the volume of equities traded reaching a four-year high.

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The consultants are flocking to Saudi Arabia.

The kingdom has spent US$1.25 billion on fees for management consultants this year, according to a report from Source Global Research, as it gears up to announce its National Transformation Plan on Monday. The NTP is a raft of economic reforms designed to insulate the Saudi economy from the impact of low oil prices.

The fall in hydrocarbons revenues has hit Saudi Arabia’s financial buffers and widened its fiscal deficit, meaning that the Gulf monarchy has realised that it must embrace new policies – which is proving a boon to the economic advice industry.

Spending on consultants grew 14.8 per cent in Saudi Arabia year-on-year. That makes the kingdom the largest and fastest growing market for consultants in the region. The GCC as a whole spent $2.7bn on consultants in 2015, up from $2.46bn the previous year.

“For consultants, [Saudi Arabia] currently represents the mother of all transformation projects,” said Edward Haigh, SGR’s director.

Jason Tuvey, an emerging markets economist at Capital Economics, said: “Saudi ministries have relied on western consultants and experts for many years to help with running the economy. It’s a way for the Saudi government to get outside auth­ority for their plans. For consultants, there is plenty of work available.”

The consultancy McKinsey argues that the kingdom needs to create 6 million new jobs by encouraging $4 trillion of new investment into its non-oil economy by 2030, in a report published shortly before the Gulf state announced it would embark on an economic reform programme.

The four largest consulting firms, PwC, Deloitte, EY and KPMG – which have recently expanded their consulting businesses – have benefited most, earning $913 million in fees in 2015, according to the report.

As oil prices rose steadily from 2003 to 2014, Gulf states embarked on an infrastructure spending spree. Mega-projects from the Kingdom Tower in Saudi Arabia, to the Qatari stadium projects ahead of the Fifa World Cup 2022, and the UAE’s major airport developments, have provided plenty of business for consultants.

But with oil prices now at $43 per barrel, down from a high of $110 in the summer of 2014, the Gulf states are turning to consultants to help them trim their budgets as they enter an era of austerity. Privatisations, cuts to subsidies, reductions in social welfare payments and overhauls to sovereign wealth funds have all been considered, and consultants are advising on each of these changes.

Last December Saudi Arabia announced an austerity budget in which it would cut spending by 13.8 per cent this year.

Some elements of the NTP have been mentioned in deputy crown prince Mohammed bin Salman’s public statements.

Ministries have been told to cut their individual spending plans by 5 per cent each, on top of additional policy changes, Reuters reported in March. Prince Mohammed said this month that the kingdom would hope to generate more than $100bn per year by 2020 in new revenue from subsidy cuts, new labour market rules and the introduction of VAT. He also outlined a complex plan to transfer ownership of Saudi Aramco to the Public Investment Fund, a new sovereign wealth fund.

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Long-term sukuk issuance rose by 21 per cent year-on-year in the first quarter, as Gulf states with worsening fiscal balances tapped international bond markets, data from Fitch shows.

GCC states – along with Malaysia, Indonesia, Turkey, Singapore and Pakistan – issued US$11.1 billion of sukuk in the first three months of the year.

These states are choosing to issue more of their debt as sukuk rather than conventional bonds, the data show. These countries issued 39.3 per cent of their debt as sukuk – the highest ratio of sukuk to conventional debt in eight years, according to Fitch.

Gulf states lost $360bn in revenues from oil sales last year, according to the IMF. That has led to fiscal deficits across the Gulf, meaning that governments are selling off sovereign wealth, cutting public spending and issuing new debt.

Oman issued $520 million in sukuk in October. In February, Bahrain cancelled a planned $750m Islamic bond issue after its credit rating was cut by Standard & Poor’s. It reinstated the bond issue several days later, at a slightly reduced value of $600m. Qatar’s Ahli Bank issued a $500m sukuk this month that was 2.4 times oversubscribed, according to Reuters.

S&P estimates that Gulf states will issue $45bn in new debt this year, up from $40bn last year. Saudi Arabia, which is expected to issue $31bn of debt this year, aims to tap international bond markets for the first time in its history by the end of the year.

The value of sukuk issuance this year “will at least match” last year’s value, Fitch said.

Sukuk issuance last year fell to $35.5bn, its lowest level since 2010, according to Bloomberg data. Lower global growth may press on corporate demand for sukuk even as Gulf sovereigns turn to new debt to finance their deficits, according to S&P.

Credit ratings for Gulf states have also been hit in line with falling oil price estimates.

Moody’s cut Oman and Bahrain’s credit ratings last month and has put the rest of the Gulf on notice that it will be subject to further negative downgrades. That will push up prices for Gulf borrowers seeking to tap sukuk markets.

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Over 40? You need a three-day workweek

If you are over 40 and reading this in the office, you should probably take the rest of the week off after today.

That is the lesson to be drawn from new University of Melbourne research, which argues that working more than 25 hours a week harms the brainpower of adults over the age of 40.

Shinya Kajitani, Colin McKenzie and Kei Sakata, three economists, knew that stress impairs cognitive functioning and development. They also knew that working some hours rather than none can improve mental acuity. So they looked at the Household Income and Labour Dynamics in Australia data set, which monitored the economic, well-being and labour market data of about 25,000 Australians.

They found that for people above the age of 40 working less than 25 hours, turning up to their job improved their mental functioning. But beyond that, working led to decreases in memory, and verbal and spatial intelligence.

The connection between long hours and health problems has long been known. Working more than 55 hours a week can lead to a greater risk of heart disease, depression, stroke and diabetes.

But the research from Kajitani et al is one of the first times that the effect on intelligence has been measured. “In the middle and older age, working part-time could be effective in maintaining cognitive ability,” the researchers conclude.

A team of UK researchers at the New Economics Foundation, a think tank, argue that the optimal length of the working week is just 21 hours. “A ‘normal’ working week of 21 hours could help to address a range of urgent, interlinked problems – overwork, unemployment, overconsumption, high carbon emissions, low well-being, entrenched inequalities and the lack of time to live sustainably, to care for each other and simply to enjoy life,” the think tank argues. Families would be able to more equitably divide housework and unpaid care activities – looking after children and disabled family members, for instance. Then there’s Parkinson’s Law, jokingly penned by the historian Cyril Parkinson in the pages of The Economist, which runs: “Work expands so as to fill the time available”.

The moral of all this was captured by the Elizabethan poet Michael Drayton: “Not long youth lasteth, and old age hasteth / Now is best leisure, to take our pleasure.”

So stop reading this, leave the office and enjoy your life.

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Money on your mind – it's a very complicated relationship

When there are two cars in every garage, a third is unnecessary, and a fourth is positively burdensome.

So wrote Ronald Inglehart, a sociologist who wondered why what people want out of life has changed so much since the 1950s.

Inglehart believed that technological advancement meant that most basic human needs had been met in advanced economies. As societies became better able to produce goods, citizens came to demand social and political rights to activities that would allow them to flourish intellectually, emotionally and spiritually.

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This article is part of our supplement on happiness, which unites us all. For more happiness stories visit our dedicated page.

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Thence came the environmentalist and feminist movements of the 1970s, the techno-libertarians of the early 2000s and, nowadays, the clamour of cosseted millennials demanding stimulating jobs.

Citizens of advanced economies, even after the 2008 crisis, are as well off or as close to as well off – in material terms – as they ever have been. But are they happier than their ancestral forebears?

A simple question, then: Does money make you happy?

One piece of research, by an economist called Richard Easterlin, found that it doesn’t. After examining a measure of subjective well-being and per capita GDP trends across the United States between 1946 and 1970, Easterlin saw no clear relationship between the two. This result is known as the Easterlin Paradox.

This result didn’t settle the question, since Easterlin’s measures of money and happiness are fairly easy to argue with.

A project at the London School of Economics has conducted a large body of research aiming to assess why happiness varies across populations and how it varies with income.

Their work has suggested a few modifications to Easterlin’s results.

Richard Layard, a labour market economist who was hired by the UK government to consult on efforts to measure happiness, argues that widespread and undiagnosed mental-health problems are a major cause of misery in advanced societies, irrespective of income.

In the UK, fewer than one quarter of people with mental health problems receive treatment. In the Gulf, where the stigma associated with mental-heath problems is greater, this figure is likely to be much higher.

Individuals also care how much those around them make. Earning a lot of money isn’t enough, the LSE research suggests – what also matters is how much money those around you earn. Pay cheque envy is why Michael Lewis wrote, of millionaire investment bankers in Liar’s Poker, that getting paid was sheer misery for almost everybody.

Alain de Botton wrote a book called Status Anxiety in 2004 in which he offered this nugget of observation: “Wealth is not an absolute. It is relative to desire. Every time we yearn for something we cannot afford, we grow poorer, whatever our resources. And every time we feel satisfied with what we have, we can be counted as rich, however little we may actually possess.”

But the hip-hop artist Ludacris, in the song Large Amounts, would disagree: “In this life one thing counts / in the bank, large amounts.”

In short, it’s a matter of perspective.

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IMF warns of slower growth for UAE and global economy

The economies of the UAE and the wider world will grow slower than expected this year, the IMF said on Tuesday.

The fund downgraded global growth prospects yet again, amid signs that world has been unable to shrug off the economic impact of the 2008 financial crisis.

The world’s growth outlook for this year was cut to 3.2 per cent, a decline of 0.2 percentage points from January’s 3.4 per cent growth forecast. By convention, the world is considered to be in a recession when growth drops below 3.0 per cent.

Maurice Obstfeld, the IMF’s chief economist, said that governments need to immediately loosen fiscal and monetary policies, while embracing new labour market policies.

“Lower growth means less room for error,” Mr Obstfeld said, in a statement. “Persistent slow growth has scarring effects that themselves reduce potential output and with it, demand and investment.” National leaders must “clearly recognise the risks they face and act together to prepare for them”, he said.

“Any recovery [in the oil price] is helpful [for the GCC states] and certainly prices look a lot better than they did at the beginning of the year when we had our experience of financial market turbulence,” said Mr Obtsfeld.

“Whether this increase will be permanent or not is hard to say. Futures markets point to levels like these as being reasonable. It’s certainly reasonable to think that at the levels we have now… and as investment retracts … prices will be supported to some degree. Probably we won’t see prices at the $100 per barrel level for some time, if ever.”

The UAE can anticipate growth of 2.4 per cent this year, below the fund’s January forecast of 2.6 per cent and the country’s slowest growth rate since 2010.

The UAE grew at an average rate of 5.7 per cent per year in the decade from 1998 to 2007, according to IMF data.

Gulf states’ growth forecasts for this year have been cut significantly since October, the last time the IMF published a detailed breakdown of the region’s growth forecasts.

Qatar suffered the biggest downwards revision, from 4.9 per cent to 3.4 per cent growth, but is set to remain the region’s fastest-growing economy. Oman, Kuwait and Bahrain have also their growth outlooks cut.

That is despite a mild oil market rally, during which prices have risen from 11-year lows of just above $30 in January to above $40 now, and signs of a tentative agreement between Russia and Saudi Arabia to freeze oil production at current levels.

“This reinforces the point that the Gulf countries are set for a long period of weak economic growth as they adjust to low oil prices,” said Jason Tuvey, emerging markets economist at Capital Economics. Even after the rally to $40 per barrel, “oil prices are still significantly lower than in 2014, and none of the Gulf economies have made the full fiscal adjustment needed to the lower oil price”, meaning that they will face wider budget deficits and lower growth over the next few years, he said.

The prognosis is bleak for advanced economies and emerging markets.

Europe, the US, Canada and Japan are set to achieve growth of just 1.9 per cent this year as economists warn that these countries have not done enough to support their economies following the biggest global recession since the 1930s.

For emerging markets, large debt piles, retreating capital flows and collapses in commodities prices are slowing growth. The IMF has cut this year’s forecast for emerging market growth to 4.1 per cent this year, down from its January prediction of 4.6 per cent growth.

This figure is lifted by the inclusion of China, which the fund expects to grow by 6.5 per cent next year. That is actually an increase of 0.2 percentage points over the January forecast of 6.3 per cent growth for China this year.

However, the IMF warns that the world remains vulnerable to further bad news from the country.

“A sharper slowdown in China than currently projected could have strong international spillovers through trade, commodity prices and confidence, and lead to a more generalised slowdown in the global economy,” it said.

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Envoy seeks Abu Dhabi funds for British cities

In 1982, Jim O’Neill, the Goldman Sachs economist who became a British Treasury minister, completed a doctoral thesis arguing that Opec oil producers did not put their savings to good use. Gulf sovereigns paid scant attention to rates of return, he wrote – and worse, made investment decisions on an “ad hoc basis”.

But now, 23 years later, Mr O’Neill is visiting the UAE to ask its sovereign wealth funds to invest their savings into Britain’s post-industrial northern cities, as part of an infrastructure initiative the UK government calls the “Northern Powerhouse”.

“I’m trying to help the government deliver on … its infrastructure objectives,” Mr O’Neill said.

That involves convincing funds to start “thinking about real estate and other infrastructure investments [outside of] London”.

“I will be handing over a pitchbook with ideas about the Midlands because a major priority of ours is to … promote the development more of urban growth outside of London,” he said.

Abu Dhabi has long been a major investor in the United Kingdom. The Abu Dhabi Investment Authority (Adia), for example, holds a significant property portfolio in London as well as stakes in hotels and UK utilities. But Mr O’Neill wants the UAE’s funds to look beyond the British capital and instead look at Manchester, Sheffield and Leeds, northern cities in which joblessness has risen as deindustrialisation takes root.

Despite spending 15 years at Goldman, Mr O’Neill retains his Mancunian accent. He mentions Abu Dhabi United Group’s investments in the city of his birth, including the development of a football academy, an expansion to the Manchester City stadium and new aviation infrastructure around Manchester Airport.

“It’s a very poor part of Manchester historically and to witness that changing as a Mancunian and as someone at the core of the Northern Powerhouse is a fantastic thing to observe,” he said.

Mr O’Neill hopes that “the appetite for private investment” in similar projects has grown in recent years.

Courting sovereign wealth for domestic UK infrastructure investments has been a theme of recent official visits to the UAE. Dominic Jermey, a former UK ambassador to the UAE and the current head of UK trade and investment, visited in June last year.

Mr O’Neill also weighed in on the UK’s Brexit debate, arguing that voting to leave the 27-member bloc makes little economic sense. “The EU is the UK’s biggest trade partner by a considerable distance.

“We have been a long established and important member of it. A world in which we were not part of the EU would be a very problematic world for the UK,” he said.

At Goldman, Mr O’Neill coined the acronym Bric – shorthand for the economies of Brazil, Russia, India and China. “As ‘Mr Bric’, I’m very aware of changing global trade patterns,” he said. “But that doesn’t translate into a case for saying that the UK should leave EU.

“The degree of destabilisation that would immediately follow [Brexit] might be enjoyable for some of my old friends in the hedge fund world but in terms of lasting economic benefits I can’t think of any obvious ones,” he said.

“It’s not obvious to me that it’s a very smart thing to do.”

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Emerging markets face 'costly economic crises' with exit of capital, warns IMF

Emerging markets saw net capital outflows of US$1.1 trillion over the last five years, a warning sign that these countries could face new economic crises as their growth prospects worsen, a new IMF report said on Wednesday.

Emerging markets have seen the exit of capital equivalent to around 4.9 per cent of their combined GDP, IMF research show. That has been driven by reduced growth prospects, which have led investors to look elsewhere for returns.

Emerging markets could face “costly economic crises” as a result, the IMF said.

These countries account for a bigger share of the global economy than in the past, and are more fully integrated into global financial markets – meaning that an emerging market economic crisis would have big repercussions beyond its borders, the IMF said.

The Gulf has not been immune to these trends, the IMF data suggests. Saudi Arabia saw net capital flows fall by 10 per cent of GDP between 2010 and 2015, as part of a global investor move away from emerging markets with slowing growth rates, the IMF data show.

“All these countries are running current account deficits. So these countries need to attract capital from abroad,” said Jason Tuvey, emerging markets economist at Capital Economics. “If they’re struggling to do so, then countries need either tighter fiscal policy, which weighs on growth, or they will face problems financing their deficits.”

The IMF published its research ahead of its quarterly World Economic Outlook, in which it is due to update its forecast for global growth. The IMF will cut its headline estimates for global economic growth later this week, Christine Lagarde, the Fund’s managing director said on Tuesday.

China and Russia account for $675 billion of emerging market outflows, more than half of the total. Russia has been hit by US and European Union sanctions that have limited investment in the country, and made it harder for state-aligned companies and banks to do business abroad.

China’s stock market experienced a rout in June last year, followed by a second wave of declines at the beginning of 2016. China’s slowing economy, and worries that official data understate the size of the slowdown, have worried investors that the country will have difficulty transitioning from a manufacturing- to a services-led economy. The IMF estimates that China will grow 6.3 per cent this year – down from a peak of 14.2 per cent in 2007.

Global stock market prices are now increasingly dependent on fluctuations in China’s growth rate, the IMF said earlier this week.

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Egypt’s non-oil economy continued to shrink last month, despite the devaluation of the Egyptian pound halfway through the month, which economists expect will eventually relieve pressure on foreign currency shortages that are hurting businesses in the ­country.

Egypt’s purchasing managers’ index, produced for Emirates NBD bank by the data company Markit, in March fell to 44.5 from 48.1 a month earlier. Any score below 50 indicates that the economy is shrinking. March marks the sixth consecutive month that Egypt’s economy has shrunk, which, if confirmed by official statistics, means that the country has entered a recession.

“The deterioration in business conditions is not entirely surprising as the survey took place at a time of elevated uncertainty that coincided with the devaluation of the Egyptian pound,” said Jean-Paul Pigat, the senior economist at Emirates NBD.

“Looking ahead, we believe that the move to a more competitive exchange rate has now reduced a key source of risk, and could therefore set the stage for a broader economic recovery in the second half of 2016.”

The Egyptian government devalued the country’s currency on March 14 by 13 per cent against the US dollar, to 8.85, down from 7.73.

Most respondents to the survey blamed the slowdown in activity on uncertainty over the government’s currency policy.

The ratings agency Fitch expects that the pound will decline further, to nine pounds to the dollar by the end of the year. This will lead to higher inflation, as the cost of imported goods rises, the ratings agency said.

Between 2014 and March this year, the Egyptian government maintained the dollar peg at a rate economists believed was too high. That led to domestic shortages of foreign currency at home and the emergence of a black market.

The currency shortages posed difficulties for businesses reliant on foreign currency to import goods and materials.

“The data [suggest] that a fall in the pound will result in some short-term pain for the economy,” wrote Jason Tuvey, emerging markets economist at Capital Economics, in a research note.

“There was a steep rise in the input and purchase price components, which suggests that inflation pressures are building … Nonetheless, over a longer horizon, we think that a weaker pound should help to lay the foundations for a period of stronger growth.”

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