Roatan, Honduras – from the town of Mount Pleasant, turn onto an unsuspecting, narrow and winding dirt road. Make the first right after you’ve summitted Roatan’s ridgeline. In less than a minute you’ll find yourself in the parking lot of the Próspera ZEDE.
At present there are only five buildings of what is soon to become the world’s “next Hong Kong.” It’s hard to believe that this laid-back tranquil oasis is at the heart of what is perhaps one of the largest controversies in Honduras right now.
Three two-story offices form a triangle surrounding a garden of native plants. To the north, the land slopes down towards the calm turquoise Caribbean sea, partially obstructed by a line of trees. That’s the view you get from Próspera’s outdoor dining hall. All around birds are chirping and insects are humming. To the left stand the “beta buildings,” the first two residencies on the property where locals from the island of Roatan have already begun to move in. Everything is built with native materials when possible, the style is “eco-modern.” The atmosphere –low-key but at the same time professional– makes this the ideal place to study, start a new business venture, or simply relax.
Welcome to prosperity in Honduras’s first fully-operational model city.
Honduran opposition to ZEDEs
It’s hard to be Honduran and not know about ZEDEs.
“ZEDE is employment. ZEDE is progress,” say the almost constant radio and TV ads, inviting Hondurans to “make your own decisions and manage your resources.” Meanwhile, anti-ZEDE graffiti and protests fill the country’s streets.
Honduras’s special economic zones, or ZEDEs as they are known in Spanish, are areas within the country exempt from most government regulation: they pay a separate tax code, have their own civil courts system, as well as private security forces.
ZEDEs may also, with the approval of congress, use eminent domain to seize and expropriate privately owned land for their own expansion.
And that’s what’s made them so controversial. In the case of the Próspera ZEDE, the leaders of the neighboring Afro-Ingles town of Crawfish Rock fear displacement, despite the ZEDE’s assurance that they have no intentions to.
Large institutions, including the Episcopal Conference of Honduras, the Autonomous University of Honduras, and the National Anti-Corruption Counsel (CNA), all vocally oppose ZEDEs, alleging that they violate Honduras’s sovereignty, amounting to a foreign land-grab and consolidation of power by the country’s ruling National Party, which has largely been in charge of their implementation.
A recent publication by the Anti-Corruption Counsel states: “The CNA establishes its position against, and complete rejection of, the ZEDE,” due to the “violations of basic elements of the State” – “its territory, power, and people,” adding that “ZEDEs are the result of the authoritarianism and totalitarianism of people in power.”
The law is “unconstitutional under any circumstances and hurts human rights and people’s self-determination,” says Melvin Ulloa, a member of the Common Front Against ZEDEs.
Locals fear displacement
The residents of Crawfish Rock say that the ZEDE’s development could mean life or death. “We are going to be the first to be displaced,” says Luisa Connor, President of the local government. “I am fully against ZEDEs.” She fears that when Próspera expands beyond its 58 acres, they will be the first ones thrown off their land.
Crawfish Rock is a small fishing village of 796 residents according to recent census data. The land where most residents live is divided up between four families that have lived there for generations. Before Próspera arrived next door, they tended to be trusting of foreigners; they are located between two foreign-owned beachside resorts, so development is normal to them.
Electricity, internet and TV are all new arrivals in Crawfish Rock according to locals, so practically none of the residents knew about ZEDEs when they were first approved by the Honduran congress in 2013.
The people of Crawfish Rock have been wary of Próspera since the very beginning – they say that the people running the model city have done everything with “as little transparency as possible” and with “very bad intention.”
“You know, all it had to have been, you come to the community and tell the people the truth,” says Vanessa Cardenas, a primary school teacher and the community’s Vice President.
Connor says that Próspera CEO Erick Birman and Technical Secretary Tristan Monterosso misrepresented the ZEDE at a July 2019 meeting, describing it as a “tourist complex” that would bring jobs to their community. “There was no explanation of Próspera or ZEDEs,” they say.
Representatives of Próspera shared a resolution approved by a majority of members present at the meeting, stating “we are excited about having Próspera – a real estate and community development project – next door.”
But my sources present at the meeting allege that people were manipulated into signing, thinking they were reserving a spot for future employment.
“Próspera is never going to expropriate,” says Ricardo Gonzalez, one of the ZEDE’s lawyers, adding that it goes against their “core value” of “defending private property.”
He sees the opposition to ZEDEs as politically motivated, given Honduras’s upcoming November presidential elections and the widespread disapproval of President Juan Orlando Hernandez, whose conservative party is one of the most fervent supporters of ZEDEs. He says people are spreading “fake news at the biggest [scale] possible.”
“You shouldn’t just take someone’s word for it. But people here at Próspera have told us that they have no intention of expropriating land,” says Virginia Cecilia Man, a Crawfish Rock native employed by Próspera. “They’re in fear of what they don’t understand, what they don’t know,” she says of her community.
Carlos Alejandro Pineda, the secretary of The Committee For the Adoption of Best Practices (CAMP), the ZEDE’s governing body, says expropriation is “a remnant of a previous version of the law, and if you ask me a bit more of a headache than something that should be there.”
ZEDEs are, to Pineda, “a work in progress” that he hopes will become “eventually more democratic and much more transparent than [they are] right now.”
The CAMP and ZEDEs are not subject to Honduras’s Free Access to Information Law, and they have not yet established a standardized mechanism for publicly redacting information.
While the CAMP’s first members were publicly appointed by President Juan Orlando Hernández and approved by the Supreme Court of Honduras, any replacements or alterations moving forward are made internally and aren’t obligated to make their names public.
Pineda shared the CAMP’s most recent resolution on expropriation, which stipulates that, as approved by the Honduran Government, ZEDEs may expropriate “when they plainly demonstrate through an exhaustive cost-benefit analysis the value of the project for community development,” among other conditions.
But the leaders of Crawfish Rock remain unconvinced. They worry that, even if Próspera doesn’t make a land grab today or tomorrow, they very well could in 5-10 years. “If we don’t face this now our [children] and grandchildren are going to,” says Cardenas. She says, “we’re living under threat and it’s affecting us both emotionally and physically.”
Honduran economist Carlos Urbizo Solis sees ZEDEs as a wholly unconstitutional infraction on national sovereignty. But more than that, he says, “it doesn’t matter if they are good or bad, it matters if Hondurans want them,” adding that “it’s incredible that the government is insisting on something that the people don’t want.” given that, according to him, “all of the organized institutions in Honduras are against ZEDEs.”
The organic ZEDE law also requires a supermajority of at least two thirds of the National Congress to be overturned. And even then, once the ZEDEs reach a population of over 100,000 inhabitants, the overturning of the law would require a referendum. The ensuing transition period may not last for less than 10 years.
“That’s because people have a right to decide how they want to live,” said Pineda. “If this is working for them, then they should be at least asked if they want to get rid of them. Or else you would find yourself in the situation that Hong Kong is in right now.”
Regardless of the intent of the law, it appears that once ZEDEs reach that critical mass, they are pretty much here to stay.
A history of ZEDEs
In the wake of the 2009 coup on the left-leaning President Manuel Zelaya, the government of conservative Porfirio Lobo Sosa knew that they needed some “radical” ideas on the table to stimulate growth and attract foreign investment to Honduras.
But rather than redesigning the whole country’s legal ecosystem, a government think-tank proposed, why not establish special economic zones within the country, following the successful models of Hong Kong, Dubai, and Singapore?
That’s how Octavio Sanchez, inspired by US economist Paul Romer’s theoretical “Charter Cities,” first presented the model of ZEDEs in 2010. In Romer’s original model, a foreign country like Canada or the US would take control of a region of a “third world” country like Honduras, effectively ceding its sovereignty. The Honduran supreme court didn’t like that idea and disapproved of it. Much of the initial framework remained intact when they voted on it a second time–but not before President Juan Orlando Hernandez, at the time the head of congress, dismissed four Supreme Court magistrates from the opposition Liberal Party, which amounted to, according to local reporting at the time, a “technical coup.”
Secretary Pineda describes the ZEDE law as “a menu of options”; “what that means is you can take bits and pieces and put together a framework that allows for new industries to arise, that would be very difficult if not impossible within the rest of the country.” While Próspera’s focus is on the tech start-up industry, other ZEDEs, like Orquidea in the country’s south, are agro-industrial parks–something that’s never existed before in the country.
In order to attract foreign investment Honduran ZEDEs have a standardized 12% tax rate and offer the opportunity to develop virtually any project imaginable. While ZEDEs like Próspera are private endeavors, they can also be created by municipal governments. Mr. Pineda expects that ZEDEs will have an economic “spillover effect,” pumping at least $50 million into their neighboring communities over many decades.
“The movement in favor of this type of special jurisdiction zone is based in the ideology of decentralizing power,” said Beth Geglia, an anthropologist studying the ZEDE model. Ironically, Geglia believes that the model has ultimately resulted in the “centralization of power in Honduras in the years since the 2009 coup, and especially within the CAMP.”
“It’s interesting that the ZEDE model doesn’t take into account conflicts of interest,” she said. “There’s nothing that says that one of the 21 members can’t decide to run for political office.”
Inside the Próspera ZEDE
“Próspera is based on the best ideas and successful case studies of special economic zones around the world,” said a representative of the ZEDE in a statement.
“Hong Kong, Singapore, Songdo, Dubai International Financial Center are all examples of zones where legal and regulatory structures have encouraged investment and facilitated economic development. Próspera believes in adopting policies that have proven successful elsewhere in the world with the aim of creating a world-class community in Honduras, one that attracts investment, creates jobs and invigorates the Honduran economy.”
Gabriel Delgado, a Guatemalan US-educated entrepreneur, is the co-founder of the Próspera ZEDE. He said he’s been trying to implement similar projects in Guatemala for the past 11 years.
“I thought, well, the best way to go about making these changes is to go to Honduras, make it happen, be very, very successful and expand the model to other countries,” he said, “what we’re looking to do is insert the conditions that are known to provide prosperity to locations around the world and that have been proven to do so.” According to him, those conditions are: a relaxed regulatory environment, foreign investment, and a lack of corruption.
Right now he’s looking for “builders and creators” with a “certain amount of economic success, who can come and set up businesses here.” Delgado estimates that Próspera has between 50 and 60 investors, mainly from Europe, with a smaller number from Central America and the US.
Those investors are not themselves without controversy–among their chief advisors, according to Próspera’s website, is Shanker Singham, considered by many to be “the brains of Brexit” in the United Kingdom. When asked for comment a representative of Próspera said that Singham’s personal beliefs do not reflect on their organization as a whole.
Through its employee leasing platform, Próspera aims to make it as “frictionless as possible” to hire Honduras’s best talent. Próspera Employment Solutions (PES) has built a database with the names of at least 1,100 well-educated young-adult Hondurans that can, through Próspera, be hired by foreign companies.
“You can kind of think of it like outsourcing,” says Daniel Fraizee, the head of the project. He hopes PES will spread across all industries, but so far they have seen the highest demand in software programming.
Próspera’s first major construction project, “Duna Tower” –which broke ground in late September– is being carried out by the Honduran development firm Apolo Group. They plan to build two 10-story and two 13-story mixed-use commercial, office and residential towers.
Apolo CEO Erick Pitsikalis says the site will “look and feel like a huge modern wood and glass type of organic multi-story complex.” Studio apartments go for between $300-400, “super accessible by Roatan standards.” According to local sources the average cost of living on the island is over $800 a month for a family of three.
Economist Carlos Urbizo Solis projects that ZEDEs like Próspera will benefit a privileged few and only contribute to the country’s inequality. He compares ZEDEs to Honduran tax-exempt factories called “maquilas” to explain why he doesn’t believe the model is destined to succeed: “the maquilas, that are so popular here, have generated 150,000 jobs in the past 40 years, nothing more. Right now there are 3 million people unemployed, out of a working population of 7 million.”
According to The World Bank, 9.3% of Honduras’s working population is unemployed, more than double the rate 10 years ago. But Solis says he sees no evidence that ZEDEs will be more successful in generating jobs on a massive scale.
Vanessa Cardenas of Crawfish Rock sees Próspera’s platform as leaving the “worst jobs” for her community. She thinks Próspera should have said “yes, we can probably offer you all jobs for two years to build this ZEDE for us, but this ZEDE will be an innovational, technological, robotical, whatever, ZEDE, and you all are not prepared for it so that in the long run, what you all will probably get is the least of the jobs, the jobs to clean the streets or the jobs to clean our bathrooms.” She adds, “the island people are not prepared to get the best of the jobs.”
But from the start, Vanessa says, Próspera hasn’t fully understood Crawfish Rock’s dynamic; as an organization with a majority male leadership, they didn’t realize that “women are the ones that go out daily to fight for the needs of the community.”