Próspera, Honduras: A Controversial Experiment in Corporate Governance

Próspera, Honduras sits on the island of Roatán in the Caribbean Sea. Though it attracts a lot of foreign visitors, it is not a beach town, nor is it a resort. Próspera is a special economic zone, specifically a “Zone for Employment and Economic Development (ZEDE),” as established by the Honduran government in 2013. The legality of these zones was originally enshrined in the Honduran Constitution by former President Juan Orlando Hernandez to attract investment and for economic development. In 2017, Honduras Próspera Inc., a U.S. based company, signed an agreement with the Honduran government, taking control of the zone. Its identity as a semi-autonomous zone is unique; the Honduran government has little control over it, Honduran law does not apply there, and the zone does not pay taxes. For example, labor laws and regulations are different, as well as the court system, which is not headed by Honduran judges. 

Since the agreement was implemented, major changes have occurred. The zone is effectively governed by the corporation and has a completely different legal framework from Honduras itself. Founder Erick Brimen says that its guiding principles include low taxation rates and deregulation of businesses. Próspera boasts single-digit tax rates, for example, levying a one percent tax on gross business income, compared to Honduras’ 25 percent tax. Furthermore, corporations operating in Próspera can choose which regulatory framework they want to adopt, being allowed to take bits and pieces from different (OECD) countries’ industry rules. Próspera's free-market values have drawn a wide range of political ideologues. Notably, libertarian-leaning tech billionaires such as Peter Thiel and Marc Andressen have invested in Próspera’s development, and some libertarians see the zone as an important experiment in corporate governance. Although the ZEDE includes labor laws, such as a minimum wage and the workers’ right to unionize, many of its critics argue that corporations’ regulatory autonomy puts workers at risk of exploitation and workplace hazards. Duna Residences, an apartment building, is the largest tower on the island of Roatán, and is much taller than what local Honduran building code outside of the zone allows. In 2024, a worker passed away after an accident during construction of the tower. Though Próspera claims his family was compensated appropriately in respect to Honduran law, no public investigation was conducted. Critics claim this lack of transparency is directly correlated with Próspera’s leniency on corporations. 

At its core, Brimen claims that he originally set up Próspera in order to reduce poverty and contribute to Honduras’ economic development even outside the zone, yet many argue that these goals have been forgotten along the way. Economist and former World Bank leader, Paul Romer, was a key figure in developing ideas about “charter cities,” a predecessor of the new ZEDEs, and he believed that their creation and special status would increase economic growth for the entire country. He argued that “charter cities” would allow a country to explore various methods of governance and institutions to see what could enhance growth and development. The zone might be overseen by parts of the domestic government, another country, or even a corporation. He makes sure to distinguish his model from old structures of colonialism, because charter cities are supposedly free from coercion and have an element of underlying “choice”, where residents may decide if they would like to move into the zone and live under its laws. Romer, who once was a supporter of Próspera and its goals, has since changed his mind about the benefits of Próspera for Honduras. He says that Próspera has “lost its way.” 

Special economic zones have existed for a long time across the globe. One such example is Shenzhen, China, a charter city which has grown into a large commercial metropolis since the 1970s after the Chinese government lowered economic restrictions by opening to foreign investment. While it has developed rapidly, at the same time its rapid industrialization has caused risks of pollution and corruption. The original inhabitants of the island of Roatán voiced similar concerns. 

Right next to Próspera, in the fishing village Crawfish Rock, the majority of the community feel threatened by its continual expansion. Many residents lament that Próspera’s recent influx of residents has put a massive strain on the local public systems, such as roads and police forces. All the while, taxes that residents of Próspera pay do not go towards these services; instead, they are reinvested solely inside of the zone’s development. In addition, residents of Crawfish Rock and the rest of Honduras are worried about the growing power of Próspera and how it may undermine the sovereignty of the state. The current Honduran president, Xiomara Castro, has achieved widespread support in her goal to challenge the constitutionality of ZEDEs. Following a Supreme Court decision in September 2024 declaring ZEDEs unconstitutional, Próspera and the Castro administration have been locked in a legal battle, each challenging the other’s right to autonomy and sovereignty. The question remains: are Próspera and other ZEDEs legitimate ways of boosting economic development, or are they another form of neo-colonization?