The emergence of startup cities is a story we’ll cover extensively these next few years. Given the institutional failures of government-run cities, can better alternatives be found in the private sector, namely among those who want to build capitalistic, pro-growth “startup cities”? Our coverage collaborates with MUR founder Scott Beyer’s trip through the Global South. He’ll visit dozens of these startup cities to interview their founders and tour the grounds. One that he likes in the early months of the trip is Prospera in Honduras. 

Prospera is a development brand that looks to build micro-cities wherever allowed by governments. 

They’re currently developing their flagship project on the Honduran island of Roatan, and another one in mainland Honduras dedicated to industry. While the Roatan one (which we cover in this piece) faces challenges, it has ingrained advantages that could make it a fit for investors, entrepreneurs, or vacation home buyers, and gives it a high ranking on Beyer's Startup City tour.

Prospera describes itself as a “platform” and seeks to operate cities through a mix of advanced tech interfaces and classical liberal principles. 

Its goal is to establish a number of cities using its platform, with its “Roatan Hub” under development since 2017. 

The city was enabled by legislation passed in 2013 that would have made Honduras a launching pad for private cities. The nation established Zones for Employment and Economic Development (ZEDEs), giving them broad autonomy from the Honduran government despite being incorporated on Honduran soil.

According to Paz Gomez, writing for Econ Americas, the setting for Prospera has advantages relative to the rest of Honduras for doing business. 

“Unlike mainland Honduras, the island, a former British colony, boasts a lower crime rate, and its 60,000 residents speak primarily English.” 

It also has advantages over the standard Special Economic Zones that have become prolific worldwide, most of which have an industrial focus. 

ZEDEs, by contrast, allow for full-fledged multi-use cities. As Gomez explains, the ZEDE gives the entity the power to make itself a municipality and build infrastructure. But unlike generic municipalities, their autonomy means they effectively serve as small nation-states.

Prospera is taking advantage of this by pursuing both industrial growth, but also residential, commercial, and white-collar jobs - ultimately striving, says Ayau, to become the “Latin American Singapore”. 

That is a lofty goal - and unlikely given that Roatan Island is remote, has infrastructure challenges, and sits in a Third World Country. 

But Prospera is still pursuing sound policies that give it potential:

• Land-use regulation: Prospera is zoned more permissively than the nine other Latin American startup cities Beyer visited. The code utilizes transfer of development rights, allowing developers to purchase air rights from each other, as to allow skyscrapers. Crucially, the Prospera platform sells these rights itself, extracting value from its land holdings. These holdings (land + air) are bundled together and available as purchasable shares for investors, resembling a REIT. 

• Financial center: Prospera has its own financial system designed to regulate financial services in a more streamlined way.

• Alternative legal system: the city has a legal framework based on Common Law, but businesses in traditionally regulated industries can also choose to be regulated under the law of any OECD country or propose their own legal code before the city’s authorities, who can approve or reject it. Prospera has its own arbitration center, which is meant to achieve faster dispute resolution than is standard with government-run courts. 

• Web-based public administration: it has an “eProspera” framework for registering citizenship, mirrored after Estonia’s program. Prospera calls this a “one-stop shop for individuals and businesses to manage their personal data, legal entities, and regulatory compliance.”  Prospective citizens pay a small annual fee for entry.

• Open education markets:  the city opts for a private, competitive approach, with one school already open. It aims to be a hub for innovation in education, having hosted a conference on the topic in 2022. 

• Low taxes: 10% individual income tax on 50% of gross income (effectively 5% individual gross income tax); 2.5% retail VAT; 10% corporate income tax on 10% of gross income (effectively 1% corporate gross income tax); and 1% land value tax.

Chris Wilson, a company rep, says that Prospera’s advantages for entrepreneurs include its “stable legal and economic regime based in common law, tax attractiveness, English internationally compliant and enabling regulatory framework, robust legal and dispute resolution framework, foreign currency availability with free capital flows, and world-class e-governance platform.” The company boasts a one day turnaround for business incorporation, and claims it can cut the “steps” required to establish a business by 8. 

We would go further and say that Prospera has a collective policy package that mirrors, or even surpasses, the best practices that brought prosperity to startup city mega-successes like Dubai and Singapore.

But what sets Prospera apart is the setting. 

It's perched up a small mountainside overlooking the coral blue waters of Pristine Bay, and has a tropical landscape and white sand beaches. The surrounding island of Roatan has character, with an assortment of old-school comunas, fishing boat docks and other tourist attractions.

Contrast this with other startup cities that, given their industrial nature, often assemble non-descript land on city outskirts. 

Prospera's natural beauty gives it a staying power that would exist even without the low taxes and regulations. 

The challenges faced will be political. One controversial aspect is its location near Crawfish Rock, a small comuna full of island natives. Prospera's land footprint is under 1 square mile, and any expansion would involve buying land from within the comuna, which the company doesn’t plan to do. This means there’s a geographical limit to how much the flagship Prospera sight can expand, although the company has incorporated additional land further east on Roatan. As for Crawfish Rock, that could become a roadblock: already, one gets the sense based on news reports of a love-hate relationship common in other gentrification stories - on one hand, Prospera-based businesses are the largest providers of jobs for Crawfish Rock residents, and the city provided water for a brief period; on the other, there have been disputes about said water, project scale, road access, and other issues. 

But the biggest challenge moving forward with Prospera will be the status of the ZEDE law. 

It has already been utilized to build three communities in Honduras, but has been a target of left-wing populists, who claim the country is selling off its territorial sovereignty to outside investors. This oppositional sentiment culminated in spring of 2022, when the newly-elected socialist government repealed the ZEDE law, which it deemed to be unconstitutional despite at least two prior rulings of the Honduran Supreme Court to the contrary. 

The regime has suggested that the repeal won't impact existing ZEDEs, only prevent creation of new ones. However the message has been mixed across different officials. 

“Elements of the current administration [have] told us point blank they ‘don't know’ what the legal status of Prospera ZEDE is,” writes Nick Dranias, Prospera’s general counsel. “Certain internal documents from the government's IRS equivalent have conceded this point. But other officials have stated that the ZEDE does not exist. It is pretty unclear overall.”

In the event Honduras does go rogue and renege on the existing ZEDEs, Prospera has multiple layers of legal protection, including international investment treaty protection for a 50-year legal stability guarantee that was made both in the ZEDE law itself and expressly in the Honduras-Kuwait bilateral investment treaty. Between this and Roatan's remote location, we see little threat of harassment from Honduras' federal government.

Prospera no doubt has lofty goals, and has become somewhat of an aspirational project for libertarian activists. 

And contrary to previous such experiments, it’s actually happening - there is already a central office, condos under construction, and an operational resort acquired from another developer. Prospera isn’t a "city" yet, but a community is forming there. 

In the best case scenario, its mix of economic freedom, scenic beauty, and savvy marketing as a “model city” themed around classical liberal ideas will make it an international destination. In the worst case scenario, it gets confiscated by the Honduran government amid a populist revolt. 

That latter outcome is unlikely, while Prospera’s positives add up to give it true potential. 

This is the first in a series analyzing different Startup Cities.