Visiting a Startup City in Honduras
There is a prompt on Hinge (a dating app) that asks, "What is the most spontaneous thing you’ve ever done?" While the rest of my profile is underwhelming, I have a good answer for this one: "I flew to Honduras to visit a startup city one week after learning about it." This is the story of that trip.
How did I end up in Honduras?
I enjoy learning about economics and economic development; I also love entrepreneurship and pitching business ideas to my friends. Over the last year I became interested in the idea of forming a startup country. I want an opportunity to compete for citizens in the same way Trader Joe’s competes against Safeway; i.e. let the best product (or country) win. While I was pitching this idea to one of my friends, he told me a similar idea was unfolding in Honduras — apparently the name for my idea was "charter cities" and there was a whole community of people interested in the concept.
After learning about this charter city in Honduras, I looked it up and quickly found it. It was called "Prospera." As soon as I found their website, I emailed them and asked if they’d give me a tour. They replied & said yes, so I bought a ticket for the following week and flew down.
What do you mean by "startup city?"
In 2013, the Honduran government passed a set of laws that legalized the creation of ZEDEs, or "Zone for Economic Development & Employment." Wikipedia defines a ZEDE as the following:
Zone for Employment and Economic Development (Zonas de empleo y desarrollo económico, or ZEDE) is the name of a new type of administrative division in Honduras (colloquially called a model city) that is subject under the national government and provides a high level of autonomy with its own political system, at a judicial, economic and administrative level. Cities will be created with the intention of attracting investment and generating employment in currently uninhabited parts of the country, or in municipalities that agree to be converted into ZEDE zones.
Put simply: Prospera has its own business regulations, taxes, and building codes — but is still subject to the criminal laws of Honduras and is a political subdivision within the Honduran governmental hierarchy. It is similar to a municipality, except with far more public policy autonomy. Income tax levels, business regulations, trade agreements, building codes, and business disputes are all governed by Prosperan law. The ZEDEs were created as sandboxes for best-practices in economic and public policy, similar to how General Electric might create a "garage startup" program to test new innovations and ideas outside the slow-moving institutional apparatus. Some ZEDEs might have stringent labor laws, while others might have looser regulation — and Honduran citizens will be able to choose which ZEDEs succeed by voting with their feet and moving to the ZEDE they like better.
The genesis of this project originated with an economist named Paul Romer who popularized the idea of charter cities in a 2009 Ted Talk. After hearing about Romer’s ideas, a group of Honduran government officials became interested and offered to collaborate with him. They saw Honduras was not developing as quickly as other countries and wanted to jump-start its development.
ZEDEs are similar to other "Special Economic Zones" around the world such as Hong Kong, Shenzhen, and Dubai. China has been a major proponent of SEZs. When Mao Zedong died in 1976, Chinese officials wanted to experiment with liberalizing the economy and transition to a free market economic system. One of the "sandboxes" they initially experimented with was Shenzhen, a city in Southern China. Shenzhen has since become a rich and vibrant metropolis — something the ZEDE architects hope will happen with their zones as well.
Prospera is located on an island 40 miles off the coast of Honduras called Roatan. Prospera currently owns 60 acres on the island and is buying another 600 acres soon. The plan is to entice real estate developers to build on the land and create value for everyone. Prospera can sell the land outright to developers or sign long-term leases; the result will likely be a mixture of both. While Roatan has historically been a popular tourist destination for snorkeling, scuba diving, and chugging Mai Tais, the founder of Prospera chose this location because of the ZEDE laws already in place. To get there, I flew from San Francisco, and it took me 10 total hours to arrive. I flew from SFO → Houston, and then from Houston → Roatan. It’s only 80 degrees most of the time on Roatan, but it’s humid as hell. The primary language is Spanish, but you can easily get by with English.
The hotel I stayed at was not "inside" Prospera. Prospera only occupies a small fraction of Roatan; it does not encompass the entire island. Roatan itself is pretty big; it’s a 2–3 hour drive across. It was easy to find a nice hotel there, as it’s a popular destination for tourists around the world.
Arriving to Prospera…
I stayed at the west end of the island, while Prospera is at the north end. On Roatan, most of the security forces are private companies — similar to the privately hired guards you see in front of a bank or a Tiffany’s in the USA. There are actually more private security forces on Roatan than government police. You might think this sounds Mad Max-ish, but it works smoothly. I felt safe the entire time.
When I drove onto Prospera’s land I immediately saw the 3 buildings they have built: 2 model homes and 1 office building. The main office building was beautiful. In terms of infrastructure, they have already built the basics: a septic system for sewage, electricity, running water, natural gas, and WiFi. There is only one person living inside Prospera right now — a company employee is living in one of the model homes. It’s not 5 star living, but he’s got all the basics with a grocery store 15 minutes down the road (but outside of Prospera). Long term, the founder of Prospera hopes a company like Safeway sees a business opportunity to build a grocery store. Before that happens, though, Safeway would need to believe there is consumer demand. This is one of the many chicken-and-egg problems Prospera faces.
My guide, Daniel, walked me around while telling me about the longer-term vision and introducing me to other employees. I was seeing the embryonic first stages, he said. After touring Prospera for an hour or two, Daniel invited me out to dinner with his wife and brother — both of whom work for Prospera. We then drove to a nearby pier and took a small ferry to a nearby island with a restaurant on it. It was a beautiful evening and we ended up spending almost six hours together the first day. I peppered them with questions for 5.9 of those hours.
Prospera was founded in 2018 by a guy named Erick Brimen. He was born in Venezuela and has seen how sideways governments can go. There are 40–50 people working for Prospera. I met ~10 of them, including Erick himself.
The initial 60 acres were bought from a local landowner on Roatan. Many people are concerned about Prospera stealing land, but as a practical matter, they can’t. They can only buy land from willing buyers. Prospera wrote a number of clauses into their constitution appeasing people of the concern over expropriation. Prospera cannot "take over" a town because incorporating into a ZEDE is an opt-in event.
Everyone asks about safety and security in Prospera. If Prospera is physically dangerous, it will fail — as it should. As mentioned previously, most resorts and office buildings in Roatan already rely on private security. I’d be surprised if security is an issue only because it’s such an obvious problem. If Prospera fails to deliver a safe living environment long-term, it would be like Apple forgetting to add WiFi to their laptops.
Prospera will have a town council of nine people, with five elected representatives and four appointed by Prospera’s management team. Important community decisions will be adjudicated by this board. Prospera appears to have written a number of safeguards into their constitution to make people feel democratically represented. It’s not a dictatorship. If it were, it would be hard to get citizens to come voluntarily.
Why would people or businesses come, though? One interesting use-case the CEO told me about is a plan for a hospital operator to build & operate a hospital system inside of Prospera. Many Americans go to Roatan for medical tourism, yet there are few American doctors there because Honduran law does not recognize foreign medical degrees — even if you went to Harvard. So, the hospital operator wants to build a complex in Prospera because American doctors can practice there without additional re-certification. Similarly, two major hotel operators want to open hotels in Prospera because the building and zoning codes are straightforward and simple. The hotels will know if they can start building within 30 days — rather than the current process of local politics, uncertainty, and costly delays. This is where Prospera’s regulatory autonomy is a massive attraction and advantage for businesses. Hopefully this business investment then attracts employees and citizens looking for economic opportunities.
The long-term goal for this project is creating the next Hong Kong. This will happen on a multi-decade long timeline. Prospera wants hundreds of thousands, or even millions, of people living inside its jurisdiction. It wants high levels of entrepreneurship, investment, and immigration. Prospera informally began in 2018 and finished their first building in early 2021.
Final Musings
I’m not sure what’s next for me and my interest in startup cities. I wrote this blog post because I wanted to share something wild and fascinating. I want to be involved in the charter cities movement, but I don’t know enough yet to understand where I could provide value. Maybe I’d like to start my own city, help promote someone else’s (like Prospera), or build a business "around" Prospera. Residents will want schools for their children, for example — and I love teaching. In the short-term, I simply want to learn more about the topic. As I learn more and follow my nose, I’m convinced an opportunity will present itself. Following your intuition will never lead you astray.
As for Prospera, I was impressed by how far along they were. In retrospect, I’m not sure what I was expecting. When thinking about the timeline, it could be decades before we know whether this is a success. In the immediate future, the next big steps will be the development of the hospital complex, a hotel, and some co-working offices. Prospera’s CEO hopes young entrepreneurs will want to take working vacations here. While it’s too early to tell if this will be become the next Hong Kong — I wouldn’t bet against them.
Further Reading
If you’d like to read more about Prospera, charter cities, and special economic zones, here are some links:
Paul Romer’s TED Talk — https://www.youtube.com/watch?v=mSHBma0Ithk
Prospera’s website — www.Prospera.hn
Wikipedia articles on SEZs — https://en.wikipedia.org/wiki/Special_economic_zone
CCI, a think tank devoted to charter cities — https://www.chartercitiesinstitute.org/
In-depth piece of Prospera — https://astralcodexten.substack.com/p/prospectus-on-prospera