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Apr 18, 2023 2:00 AM

A Peter Thiel–Backed Startup City Wants to Be Africa’s Delaware

Nigeria’s Itana partnered with Binance and the Charter Cities Institute to build a physical tech hub near Lagos, but the plan has sparked controversy.

Along the half-finished asphalt of the Ibeju Lekki Epe Expressway out of Lagos, flanked by marshland, unmarked farms, and rows of fledgling developments, there is an invisible point after which some of Nigeria’s laws suddenly no longer apply. In 2009, the Lagos state government declared a 150-square-kilometer patch of land along the Gulf of Guinea coast "the Lekki Free Zone," offering tax holidays and other perks for companies who set up there.

"The moment you are inside the zone, you are outside of the Nigerian state," says Omolade Adunbi, professor of Afro-American and African studies at the University of Michigan and author of Enclaves of Exception: Special Economic Zones and Extractive Practices in Nigeria. The rationale for the zone was simple: entice international businesses to establish a thriving industrial hub, and watch the newly created capital flow outward to the rest of the economy. ​​

So far, the projects in the free zone have been industrial, with an oil refinery, garment factories, and other manufacturing facilities looming over the scrubland. But a new project has its ambitions first and foremost in the cloud: a virtual startup city that will transform into a physical one when it lays its first bricks later this year.

Spearheaded by one of Nigeria’s most successful tech entrepreneurs, Iyinoluwa Aboyeji, and real estate entrepreneur Luqman Edu, Itana is an aspiring tech hub that promises to host Nigeria’s internet workers and help nurture a new generation of tech unicorns. Taking advantage of the Lekki Free Zone’s preexisting tax breaks to appeal to itinerant entrepreneurs, the founders envision the completed city as somewhere between the glittering spires of Dubai and Delaware, the small US state that is the registered home of more than 1.5 million companies from all over the world.

The project’s investors include stalwarts of a controversial movement to build privately-owned city-states around the world, including Pronomos Capital, a venture fund backed by libertarian billionaire Peter Thiel; it’s also working with the Charter Cities Institute, a nonprofit that advocates for quasi-independent, pro-business zones to be established in developing countries. It already has its first high-profile partner in Binance, the world’s largest cryptocurrency exchange, which has agreed to help establish a blockchain-based financial ecosystem in the new city—in a country that has heavily regulated crypto trading.

Itana has ambitions to become Africa’s Silicon Valley. But historically, private city projects and special economic zones on the continent have struggled to become the beacons of prosperity they were initially pitched as. Critics of such endeavours say they don’t contribute to society at large, but simply create havens for the wealthy, and risk exacerbating the economic inequality that has long driven conflict in Nigeria. The ideology underpinning low-tax, pro-business enclaves that exist on the periphery of the nation-state is "antithetical to the progress of Africa," Adunbi says.

The impetus behind Itana (formerly known as Talent City) comes from a sense of Nigeria’s unfulfilled potential, according to Aboyeji, who has cofounded two unicorns—private companies worth more than $1 billion. But while both—talent marketplace Andela and payments company Flutterwave—are considered Nigerian companies, they, along with fellow local unicorn Paystack, are all registered in Delaware, mostly due to the expectations of their international investors.

Nigerian companies pulled in close to $1 billion in VC funding in 2022, but tech startups still struggle with a lack of basic infrastructure, and with an ongoing brain drain of educated professionals out of the country. Regulation is unpredictable, and the government has at times adopted an oppositional stance to the sector, at one point effectively banning cryptocurrencies and blocking Twitter after protests in 2021.

"I remember bringing a piece of paper and writing down what we felt were the three fundamental pillars that needed to be solved to create the ideal environment for tech in Africa," says Edu of his and Aboyeji’s first discussion about Itana. They decided on governance, infrastructure, and community. "It makes sense to create this well-designed policy environment that would make investors feel more comfortable investing in Africa, and [allow] tech companies in Africa to be able to scale globally," Edu says.

In practice, that begins with establishing a digital free zone, where companies signing up for digital residency would be able to benefit from bespoke rules around tax, company registration, immigration, the legal system, and offshore banking. Following the digital zone will be a physical city based in an urban development project in the Lekki Free Zone called Alaro City, a private-public partnership between the Lagos State Government and Rendeavour, an Africa-focused development company ​​whose shareholders are from the United States, New Zealand, Norway, and the United Kingdom.

Itana’s website displays photographs of the marshy plot where construction is due to start, juxtaposed with artistic renderings of what the tech hub should one day look like: a verdant business park which features snaking grass-covered walkways and sunlit decks housing breakout groups. The first stage of construction aims to house 3,000 to 5,000 people, and will cost up to $500 million, Edu says. Itana has recently closed a $2 million pre-seed funding round to build the digital free zone, from VCs including Local Globe, Amplo, Pronomos, and Aboyeji’s fund Future Africa.

The founders say they have already secured 7 hectares in Alaro City for the physical district (at a value of $12.5 million), and are also close to finalizing a separate special purpose vehicle for further financing and development. Edu adds the project has had an expression of interest from the Africa Finance Corporation, a development finance organization, for investment of $50 million for the first phase.

At present, Itana has around 2,000 digital members and 200 digital residents. While members can take part in the community’s activities, digital residents pay a $100 annual subscription fee to be given preferential consideration on securing a space in the city, the ability to incorporate their businesses in the digital free zone, and access to the physical districts. Edu says he envisions Itana in Nigeria as just the first of a string of hubs across the continent forming "a decentralized Silicon Valley, with districts all across Africa."

Itana is collaborating with the Charter Cities Institute, a group set up to evangelize the charter city concept originally conceived by the famous economist Paul Romer. Romer’s idea was to set up self-governing jurisdictions in struggling countries that would be controlled by more developed countries, importing ready-made laws and institutional oversight. The success of the autonomous zone would theoretically present a positive example to the rest of the country and create an economic halo effect. One of Itana’s backers, Pronomos Capital, is a venture firm also dedicated to setting up charter cities. It’s headed up by Patri Friedman, Milton Friedman’s grandson, the libertarian founder of the Seasteading Institute.

The country that has come closest to experimenting with the idea so far is Honduras, where companies (rather than countries, as in Romer’s initial conception) bought pieces of land that were styled as city-states and established their own legal frameworks and governance systems. But the Honduran government recently voted against the laws and constitutional amendment permitting charter cities, meaning the future of the fledgling projects is now on shaky ground.

While Itana’s founders have said it is not aiming for anything as radical as this, and that they are working with, rather than outside, Nigeria’s government, the Charter Cities Institute "share similar goals as to what we're trying to do," says Coco Liu, chief operating officer of Itana. "Their idea is ideal governance, and they've identified … special economic zones as the best way to enable foreign direct investment."

Itana isn’t using the charter city label, which can be controversial. In September 2020, a viral Twitter thread from an American, Dryden Wilson Tate Brown, announced his intention to establish a new city in West Africa with his startup Bluebook Cities, saying that he had met with high-level officials in Nigeria and Ghana to discuss a project.

Critics quickly piled in on Twitter, with many denouncing the idea as white saviorism, and saying it smacked of neocolonialism mixed with a dash of Fyre Festival. Pronomos Capital was reportedly one of the backers of Bluebook Cities (which seems to no longer exist).

Pronomos Capital didn’t respond to a request for comment.

Kurtis Lockhart, executive director at CCI, rejects any such suggestions about the institute’s work in Africa. "Colonialism implies that the threat of violence, coercion, and/or political control is present, either at the barrel of a gun or, perhaps more commonly today, a debt trap," he says. "Charter cities invite neither."

Nigeria is not the only place CCI is making headway with its charter city ambitions. The organization is also working closely with Zambia’s government on setting up charter cities projects, and signed a recent memorandum of understanding with Rwanda’s government to establish cooperation on city-building plans.

Charter cities and projects like them are increasingly tech-focused—perhaps reflecting the strain of libertarianism that runs through the US tech sector, with investors like Thiel long enthralled by the anarcho-capitalist dream of communities free from the interference of big government. The crypto sector, whose adherents are often similarly hostile to state oversight, is heavily involved in nascent projects like El Salvador’s Bitcoin City, Honduras’ Prospera, and Senegal’s Akon City.

"The tech sector has long been supportive of charter cities, and many of the most exciting charter city projects in development are focused on generating more productive hubs for innovation in Africa," says Lockhart, adding that CCI was first introduced to Aboyeji through its connections with the tech sector.

The details of Itana’s partnership with Binance haven’t been revealed, but Edu says that the city will have a whole committee of blockchain and crypto stakeholders, who will advise on policies regarding what role crypto might play in the virtual free zone.

Asked to comment on the plans, Binance’s West & East Africa director Nadeem Anjarwalla said in a statement: ​​​​​​"As we continue to support blockchain adoption across the African continent, Binance is keen to collaborate with the Nigeria Export Processing Zones Authority [the regulator overseeing the Lekki Free Zone] to establish a virtual free zone with the aim of generating long-term economic growth through digital innovation. We look forward to sharing key details when plans have been finalized."

That a Nigerian government agency signed off on a crypto partnership at all is surprising. While Nigeria is one of the world’s biggest global marketplaces for crypto, ranking 11th overall in crypto research firm Chainalysis’ Global Crypto Adoption Index Top 20 in 2022, the country’s regulators have often been hostile. The Central Bank of Nigeria banned banks from enabling cryptocurrency transactions in February 2021.

Adesoji Adesugba, CEO of the Nigeria Export Processing Zones Authority, said in a statement that the partnership with Binance seeks to "engender flourishing Virtual Free Zones to take advantage of a near trillion-dollar virtual economy in blockchains and digital economy."

"It’s clear that the world is going crypto," says Edu. "And Nigeria can't lock that door forever." Incoming president Bola Ahmed Tinubu’s manifesto appears to echo this, saying that his administration will "reform government policy to encourage the prudent use of blockchain technology."

While developing its digital infrastructure is Itana’s main preoccupation right now, building the physical city might not be simple, judging from the experience of nearby development projects. Eko Atlantic, a private city project built on sand "recovered" from the ocean outside of Lagos, has made faltering progress since 2009.

The Lekki Free Zone has itself been trailed by controversies over the alleged displacement of local communities to make way for the project. Local residents say more than a dozen villages in the Ibeju-Epe area, where the free trade zone was established, have been unilaterally reclaimed by the government, some to make way for a not-yet-operational oil refinery which started construction in 2016.

"They said they wanted to use the land for revenue purposes, that there was no refinery in Lagos state, so they were planning for our children," Otunba Ladipo Olusanya Adeokun, a community leader of the Idashon Community in Ibeju Lekki, says. "What about us who will bear the children, are we not going to plan for our future? Where’s the money we are going to use to take care of our children?"

Communities around the free port area have limited access to power, while Lagos itself suffers from a crippling housing shortage. Building a new, high-end community like Itana isn’t likely to solve those problems in the near term.

"What I can tell is that it's not going to be cheap," says Yakubu Aliyu Bununu, lecturer in the Department of Urban and Regional Planning at Ahmadu Bello University, Nigeria."If you look at the purchasing power of an average Nigerian, it's going to take them years and years to be able to earn an income that would allow them to live in Eko Atlantic, or Alaro City, or any of the cities springing up in that area," says Adunbi. (Alaro City, where Itana is due to be located, advertises residences priced from $65,950; the average yearly income for Nigerians was $2,080 in 2021.)

But Aboyeji says Itana’s goal isn’t to cloister the affluent in air-conditioned high-rises. "We're not just trying to get together a bunch of opulent, rich people into a space, right? What we're trying to do is pull together a productive young population."

Right now, the 72,000-square-meter plot of land that will be Itana sits empty. What was once a swamp has now been filled in with orange sand, waiting for the first foundations to be laid. But, as Aboyeji insists, the project is all about potential, about being a vessel for the restless ambition of Nigeria’s tech scene.

"We're not some foreigners that are trying to conquer Nigeria. We are Nigerians trying to figure out, within Nigeria, a place where we can operate our businesses and build for the world," he says. "I think we will be giving a lot of lessons to the West on that."

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Nelson C.J. is a Lagos-based writer. He is a columnist at Teen Vogue, and contributes to Time, the New York Times, Rolling Stone and other publications.
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