Listen:
Key Points From This Episode:
- Welcoming back Mark Lutter, executive chairman of the Charter Cities Institute (CCI).
- An overview of the factors and events that motivated Mark to found CCI.
- How CCI has adapted the positive aspects of Silicon Valley to the context of charter cities.
- Lessons from working with multiple stakeholders, including policymakers.
- Generating buy-in at the elite level of policymakers and other powerful constituencies.
- CCI’s goal to build a broader ecosystem that can act as a force multiplier for multiple cities.
- Key successes CCI has experienced over the past two years.
- Takeaways from their conference in Kigali during November 2023.
- Mark’s thoughts on recent news concerning celebrities and charter cities.
- An overview of the development project in Zanzibar and how CCI is contributing to it.
- What CCI is doing to increase the funnel of talent to Zanzibar.
- An outline of what they hope to achieve in Zanzibar over the next 25 years.
- Unpacking viable economic opportunities in Zanzibar and how they can diversify.
- Mark’s new company, Braavos Cities, and the work that they are doing in the Caribbean.
- How they get projects across the finish line in politically challenging environments.
- Advice on engaging with politicians, heads of government, and investors.
- Key insights on Braavos Cities, their goals, and what they are currently working on.
Shorter Quotes:
“I thought that it would be a mistake for the charter city space to just over-index on single people like Paul Romer, or single places like Honduras. You put way too many of your eggs in one basket.” — @marklutter [0:04:16]
“You definitely need the entrepreneurial spirit, the willingness to go to new places, talk to new people, this growth mentality – this openness of culture [of Silicon Valley]. But at the same time – you’re dealing with a lot of stakeholders, some of [whom] are relatively conservative.” — @marklutter [0:06:50]
“A lot of the challenge was, ‘how do you create this ethos [and] take the good things from Silicon Valley, but also, adjust it to the specific context?” — @marklutter [0:07:20]
“You can define it much more broadly, where it is this positive ethos of collaboration, of problem-solving, or figuring it out, and you need to adjust the model depending on the context.” — @marklutter [0:08:09]
“The goal of Charter Cities Institute isn’t to build cities, it’s to build the ecosystem that then can become a force multiplier for multiple cities getting developed. I think in the last year or two, we’ve really seen that come through fruition.” — @marklutter [0:12:10]
“There is a lot of interest in new cities. I think the challenge is much of this interest doesn’t understand the underlying dynamics of what makes cities work, of what makes them successful.” — @marklutter [0:16:17]
“When you can bring investors that have the potential to move very large amounts of capital, the government’s going to listen a little bit more closely.” — @marklutter [0:40:05]
“You create a lot of jobs, you create tax revenue, everybody is happy, and you can start the process to building a wonderful, globally competitive city.” — @marklutter [0:42:56]
“We’ve seen a lot of initial traction [with charter cities]. But none of that initial traction has really hit escape velocity yet. It’s all early-stage startups. I think the key over the next five years is for some of these projects to hit escape velocity.” — @marklutter [0:50:32]
Longer Quotes:
“I was wrong in the sense that Próspera did get set up. [I] was right in the sense that Honduras is still a very hard place, and the Honduran government is currently quite antagonistic towards Próspera, and the long-term prospects are a little bit unclear. That was the impetus to [ask] how do you build a broad-based movement?” — @marklutter [0:04:27]
“We’re working with [the Zanzibari investment promotion agency] on a strategic plan to lay out ‘how do we really take advantage of the value that Zanzibar can provide? How do we attract investment? How do we create jobs for Zanzibaris? How do we make this economy a lot more dynamic?’” — @marklutter [0:28:04]
Links Mentioned in Today’s Episode:
Mark Lutter Charter Cities Institute
Jeffrey Mason Charter Institute
Africa’s New Cities Summit Hosted by Charter Cities Institute
Charter Cities Institute on Facebook
Charter Cities Institute on Instagram
Transcript
[INTRO]
Kurtis Lockhart: Welcome to the Charter Cities Podcast. I’m Kurtis Lockhart. On each episode, we invite a leading expert to discuss key trends in global development in the world of cities, including the role of charter cities and innovative governance will play in humanity’s new urban age.
For more information, please follow us on social media, or visit chartercitiesinstitute.org.
Jeffrey Mason: I’m Jeffrey Mason, Head of Research at the Charter Cities Institute. Joining me on the podcast today is Mark Lutter, the Founder and Executive Chairman of CCI, and also the Founder and CEO of Braavos Cities. We discuss the evolution of the Charter Cities ecosystem, exciting developments in Zanzibar and the Caribbean, and key factors which can make or break a charter city project. Thank you for listening. I hope you enjoy today’s episode.
[EPISODE]
Jeffrey Mason: Hey, Mark. Good to see you.
Mark Lutter: Good to see you, too.
Jeffrey Mason: Let’s jump in. We’ll talk a little bit about CCI, about your company, about the broader ecosystem. Let’s start with a quick refresher about why you first founded CCI, what CCI exists to do, and where things stand now relative to when CCI was founded back in 2017?
Mark Lutter: Sure. I started CCI – I mean, the story starts before that, right? I got interested in charter cities, just before graduate school, when I heard about an attempt to build a free port in Somaliland. I started thinking about if governance matters for long-term economic outcomes, how can you change governance? Governance oftentimes is difficult to change on a national level. However, on a local level, it can be possible to have much more substantive changes. There was a small community of folks interested in these ideas at the time.
Paul Romer gave his charter cities talk in 2008, or 2009, I think, and the Seasteading Institute was founded in 2008. Right, Paul Romer got a lot of attention. The Economist was writing about it, Financial Times, etc. Had two projects, one in Madagascar, one in Honduras. Neither of them really worked. Though the Honduras Project, the law that he helped pass is the basis for the law that now underlies Próspera and [inaudible 0:02:12].
When I finished graduate school, I realized that, one, this space was very high leverage in terms of having an impact on the world, and then two, that there was a, let’s call it, lack of coordination in the space. You had, for example, the Seasteading and Seasteading descendants, most of them related to, or adjacent to Silicon Valley, who are interested in pushing the frontier of governance. One of their common lines is America runs on 250-year-old code, meaning that, all right, how do we create legal and regulatory frameworks to attract the smartest engineers, lawyers, doctors, etc.?
They had that entrepreneurial spirit. They had that pushing the frontier. Weren’t thinking about deep relationships with new city developers, or really how to engage government. One example, this was 2014-2015, the president of Honduras was going to come up to do an event with the Seasteading Institute, and the Seasteading Institute titled the event ‘Disrupting Democracy’, and the president of Honduras canceled.
There were some mixing those groups not knowing how to talk to each other, and me coming from my background at George Mason. I thought I could perhaps try to bridge those worlds, in terms of mainstream development, in terms of Silicon Valley entrepreneurial spirit, in terms of working with existing new city developments, in terms of talking to governments, and figuring out how, rather than trying to reinvent everything, trying to start with what was existing stakeholders that might be interested, that were moving in what I thought was approximately the same direction, but generally unaware of these other paths that were happening.
Then, I think the other element in my decision was I worked for what became Próspera, the company called NeWay Capital, that ended up starting Próspera. I switched when they started to focus on Honduras, because I had spent time in Honduras since 2014-2015. The law was passed in 2013. At the time, this was five years later, and no project that had gotten off the ground, it was very complicated, it was very confusing. I thought that it would be a mistake for the charter city space to just over-index on single people like Paul Romer, or single places like Honduras. You put way too many of your eggs in one basket.
I mean, I was wrong in the sense that Próspera did get set up. I was right in the sense that Honduras is still a very hard place, and the Honduran government is currently quite antagonistic towards Próspera, and the long-term prospects are a little bit unclear. That was the impetus to kind of, how do you build a broad-based movement? How do you bring all these stakeholders together? How do you get the ideas out there? Also, thinking about how to focus on Africa a little more, because Africa had the most rapid urbanization, and also many countries in Africa are starting from relatively poor levels of governance that have the opportunity for large improvements. Those were some of the inputs.
The other input was what structure should this idea take? It could be a nonprofit, it could be like, try to build a city. It could be a fund structure. Próspera, or NeWay Capital, when I worked for them was a fund structure. It was clear that there was not enough deal flow for a full fund structure. I did not want to start a for-profit just because raising money for that when you don’t have a specific location lined up. I thought there was a lot of movement building, stakeholder identification, stakeholder engagement, building out what this looks like in practice that was necessary before starting projects on the ground.
I think those decisions were generally approximately right. My interest was always to move over to the for-profit side. Initially, my expectation was in three or five years, I’d set up a fund. Now it’s six years later, and I haven’t done that yet. But I think it was approximately correct in the sense of, let’s get the movement infrastructure in place. After that happens, you can start identifying opportunities and figuring out how to monetize them a little bit more effectively. That’s the high-level framing of why started CCI and the context and how it’s evolved until today.
Jeffrey Mason: A lot of this background you’re talking about, and I think this is some values that CCI embodies too, is this Silicon Valley mindset of moving quickly and break things if that’s what you have to do to get to where you need to go, and not to be too slow, too conservative. It’s easy, I think, to say that when we’re talking about software, or something, right? Okay, you fix the code. Great. We’re talking about policy, or vague infrastructure projects, or things like that. How do you adapt that mindset to a new setting?
Mark Lutter: Yeah. You definitely need the entrepreneurial spirit, the willingness to go to new places, talk to new people, this growth mentality, this openness of introductions, this openness of culture. But at the same time, given that, one, you’re dealing with a lot of stakeholders, some of them are relatively conservative. Governments often don’t want to do experiments. Cities require lots of upfront initial capital investment, and so you need to de-risk on that margin. International development community is quite conservative in terms of new approaches.
A lot of the challenge was, how do you create this ethos, take the good things from Silicon Valley, but also, adjust it to the specific context? I think, how we’ve seen that play out at least at CCI is, to some extent, in terms of hiring, when we, for example, hire from folks with more traditional development background, oftentimes, they haven’t been great fits, just because they’ve taken a little bit of that conservatism and virtue signaling, and getting younger, earlier career people who don’t have that cultural conservative background, who are willing to take a little bit more risks, I think, has paid off for us.
In addition, you can define Silicon Valley in several ways. One is it’s just like, SaaS companies. The lessons from SaaS companies are probably not super applicable to charter cities. You can define it much more broadly, where it is this positive ethos of collaboration, of problem-solving, or figuring it out, and you need to adjust the model depending on the context. We’re seeing that now with the rise of deep tech. Obviously, nobody thought you could have an iterative approach to rockets, and SpaceX has an iterative approach to rockets that has been incredibly successful.
Thinking deeply about like, all right, what is the context? Can you start with a full city development? Do you want to start with a small amount of land, build a town, and buy additional land pieces? You cut one deal with governments. Do you cut a bunch of small incremental deals as you build up momentum over time? I think both approaches could work, and a lot of it depends on what is the project, who are local stakeholders involved, and how do you identify those people that are willing to work with you in this very large, somewhat undefined project, and figure things out over time.
Jeffrey Mason: Talking about stakeholders, and right, there’s lots of different people involved, both on the financial side, who your respective residents are, who lives in the area where you want to build these things. Government policymakers, right? One of the key lessons, I think, that’s a lot of the development literature, looking at what causes policy change, what causes reform, or what allows these things to happen, is when you generate buy-in at the elite level, and at the policymaker, the business elite level, and creating these powerful constituencies that are supportive of a particular idea, or a project.
Now, how do you think that works, one, in general for charter cities, but then two, across regions? How does that differ in, say, Africa, where we’ve done some work versus, say, the Caribbean, where we’ve also had some ongoing projects?
Mark Lutter: Yeah. When Paul Romer came out, he did a TED Talk, he was getting coverage. Everybody knew, this is one of the best economists. He later won a Nobel Prize. There was a lot of interest. Also, when Seasteading, Seasteading might have the most, for any nonprofit, the most media attention for the amount of dollars in. When it launched, there was a tremendous amount of attention, like lots of press, lots of coverage, lots of interest. When I started CCI, I, let’s say, optimistically assumed I could get comparable levels of coverage, and that was not the case.
Part of it is just creating a powerful meme that gets everybody excited, that gets everybody talking. It’s a little bit like, with new media channels, it can be a little bit easier to do that. Then, two, if you have the right initial stakeholders who can provide legitimacy, then that cascades down. Part of the challenge of this multi-stakeholder engagement is, at the country level, people might not know who some of our supporters are, or they don’t know who Ed Glaeser is who’s spoken at our conferences. Identifying who these key stakeholders are, and then who the key, let’s call it people in those stakeholder groups who can help get those stakeholders to start talking about it to build a broader coalition.
I think the other part of this is making sure that these coalitions are sustainable, because with Seasteading and with the original charter city space, they weren’t sustainable, in part because they couldn’t get traction on the ground, and in part because they got attention in part. They had this grand vision and story to tell, and then there was a lack of execution success that caused a lot of people who were interested to fade away, and maybe write it off, or maybe just ignore it.
What we’ve tried to do, our initial strategy at CCI, was to partner with existing new cities, because new cities take a very long time. How do we partner with them? Get those early wins that can then be translated to something more broad, instead of taking five years to set a city up, like find somebody who’s already done a lot of the initial work, work with them, make it a little bit better, get a better governance framework, maybe target tenants a little bit more carefully, whatever that might be, and then that allows you to get those early wins.
I think a lot of the challenge and opportunity is figuring out how to build that sustainable momentum, how to build that set of best practices, how to build that community that can end up building a lot of cities, right? The goal of Charter Cities Institute isn’t to build cities, it’s to build the ecosystem that then can become a force multiplier for multiple cities getting developed.
I think in the last year or two, we’ve really seen that come to fruition. When we held the conference in Kigali last year, we had, I don’t know, a dozen, 18 new city developers there, we had a pitch competition. I think there was a lot of excitement at the event and a lot of realization of, oh, right, if you’re adding one billion new urban residents, you need a lot of work in terms of building infrastructure, building housing, creating governance frameworks that allow these urban residents to have a better life.
In terms of thinking about this coalition-building, there’s, I guess, two types of approaches. There’s this top-down approach where you create a general overarching framework and everybody really excited, and then use that as leverage lower ground. The other more bottom-up approach is to identify specific stakeholders on the ground that you want to partner with and figure out what can you do to really accelerate those projects.
CCI’s been taking this dual approach. One, setting this broad vision, mostly in Africa, but bringing together all these stakeholders. We engaged the African Union. We had African Export-Import Bank, one of the largest development banks on the continent via a large sponsor at our event. Then the other part is to, how do you actually build up momentum, so you’re not just telling a story, so you have these specific projects. I think in Zanzibar, we’ve really identified a very strong local partner, multiple local partners, that we believe can really scale into a substantive city and provide that followed proof of concept for this broad idea. Then in the Caribbean, we’ve also started working closely with some local stakeholders in terms of figuring out how to unlock a potentially tremendous asset.
Jeffrey Mason: I’ve personally been a CCI for five years, and you’ve been able to see, I think, this broader ecosystem really starts to take shape. You referenced Kigali, our conference that we had there last November. Something that really stood out to me from that that was particularly impactful, is that, so on one side of the stage, we were able to have one of our partner city projects, in this case, any of the economic city, who raised a couple hundred million from the Export-Import Bank. Then over on the other side of the stage is the person responsible for Afrexim side for the deal. To be able to put that completed circle on a showcase in front of all the roomful people who are thinking about, is this something that my institution can invest in, or is this something that I can build, or whatever? Getting that squared circle, I think, has proven to be really valuable.
Mark Lutter: Yeah, I think that’s right. Then also, finding the projects that are more advanced, for example, talk to a city. They recently had an economist article written about then, which the Charter Cities Institute was featured discussing. They’ve got 5,000 acres north of Nairobi. They’ve got about 20,000 residents. Gone by LinkedIn every few weeks. I see, oh, there’s another factory or whatever, investing 100 million dollars, creating a lot of jobs, and really demonstrating like, oh, it’s possible. Not only is it possible, here’s the playbook for how it’s done. Here’s the people who can help do it.
Building out that broader community for knowledge sharing, so it’s not this secret knowledge, but it’s this semi-publicly available information that can inspire other projects, other countries to really start adapting the same mechanisms, that can hopefully lead to more sustainable economic growth in the future in these regions.
Jeffrey Mason: I’m curious how you think with this broader ecosystem building, with say, high-profile efforts, like say, Akon’s new city, which maybe draw a lot of the traction. We just saw in the last couple of weeks, Idris Elba’s Sherbro Island project in Sierra Leone has gotten quite a bit of press, and our director Curtis, he was quoted in Lamond about it just the other day. How do these types of projects, which, in terms of most zones we’ve engaged with, are a little bit different in terms of their backing and their structure, their strategy, how do they fit in this ecosystem?
Mark Lutter: Yeah. Cities are hot right now. I mean, Kanye West was talking about doing a city, right? You’ve got in El Salvador, they want to do Bitcoin City. There is a lot of interest in new cities. I think the challenge is much of this interest doesn’t understand the underlying dynamics of what makes cities work, of what makes them successful, right? With Akon City, for example, they have these fantastic renders that look beautiful, but might not be affordable to the average resident in the country, that might not be able to attract residents, investors, businesses to relocate there.
What I would like to see, I guess, happen is for this consensus of best practices become more established, where then these new city developers, or these celebrities, or governments, or whoever it is, when they say like, we want to build a new city, they actually can get in contact with people with real on-the-ground expertise, who can help guide them like, okay, how big do you want it? What’s your target market? Get realistic about what it takes to actually get these projects done, so they’re not white elephants. But instead, can really materially help the people on the ground.
One of the reasons I started the Charter of Cities Institute is when I was in graduate school, I did a little bit of consulting work for a new city project in Kazakhstan. The government had given a very large land grant to some Kazakh businessmen, and they were flying in the world’s leading experts on cities. I remember having a conversation with a distinguished professor from MIT, and I mentioned like, “Look, zoning increases the housing prices.” His response was, “No, really?” I was like, “Look, I don’t think I’m particularly dogmatic.” If he said like, yes, it can increase housing prices, but there’s also quality of the neighborhood character. When you’re planning something, you want the initial massive people to move. You want to give them comfort that where they’re going to move is going to be a good investment for the next 10, 20 years, right? Whatever it is, right? I’m open to those arguments. There are a lot of margins on which you can play with this to make it work. But he was literally completely ignorant of the fact that zoning and land use can lead to an increase in housing prices.
Similarly, there was a discussion of like, we can put the finance center here, we can put it here, pointing to different parts of the map. We can have tall buildings. We can have medium-sized buildings. That was just what I thought was an obvious point. Unless, you have a legal system that can protect that capital, nobody’s going to want to do business there, right? You can build whatever fancy buildings you want. If you look at finance centers around the world, they’re basically all common law, right? Unless, there is a common law protected, like finance system with independent judges, nobody’s going to park hundreds of millions, billions of dollars there.
These are points that I thought were, at least from my perspective, somewhat obvious. But these experts who are being assembled for cities were unaware of them. I think that’s a challenge, generally, is people go to – if you’re a local businessman, or a celebrity, you say, “Okay, I want to build a city.” Then you might go to Harvard, or MIT, or whatever. What are the fanciest institutions I can find? Then you go to the people there. The people there might be very good at designing city blocks, or might have really good expertise in one domain. They assume the expertise in their domain scales to a city, but it doesn’t, right?
A city is not just a thousand city blocks. There are step changes in how to think about the organizational structure, the development structure as you scale up. Oftentimes, these people just don’t spend a lot of time thinking about it and don’t know. Then two, is the feedback loop for cities is just extremely long. Going back to the Silicon Valley analogy, the feedback loop for companies tends to be very short. If you put out a app, or a product that people don’t like, nobody buys it, and then you lose money.
There is a short feedback loop that can be, of course, correcting, while with cities, oftentimes, you need to put down very substantial amounts of capital for initial development, and you don’t get a sense of how well that’s working until a much longer time period. Then two, the causal chain oftentimes can be a little bit unclear. Are people moving to the city because you have a rapidly urbanizing population? Are they moving to the city because there is an existing demand function? Are they moving to the city because you have actually created a unique value proposition?
It can be hard to say like, okay, people aren’t moving because of a bad location, or because of bad zoning, or because you haven’t found the right anchor tenants, or because you’ve created a legal system. Legal system isn’t attractive to businesses. I think, you’ve got basically, experts who don’t spend their time thinking about cities, and then you have a very long feedback loop that causes a lot of these new city projects that much more public and open ones to just attract the wrong teams that then end up oftentimes failing to execute on several margins that cause people to write off these projects.
Jeffrey Mason: Let’s look then at some of the projects that we’re working directly with. One of the ones that you mentioned is Zanzibar. This is on CCI’s end, this is where, let’s say, the bulk of our on-the-ground efforts are currently targeted. Can you give an overview of what the project is in Zanzibar, and what CCI is contributing, and what the vision is?
Mark Lutter: First, so this started about a year ago. We met Daniel Yu, who’s the Founder of Wasoko. He had relocated his company to Zanzibar. It’s a fast-growing e-commerce company in Africa. He had been pushing the Silicon Zanzibar Initiative. Where the Silicon Zanzibar Initiative was focused on attracting other companies, other talent to Zanzibar. On some margin, it’s a pretty easy sell, right? Zanzibar is beautiful. It’s got a nice climate. The people are welcoming. It’s got an airport that’s very connected, reasonably reliable internet. He was pushing that angle.
Curtis and I went to Zanzibar a year ago, February, I think, where we just gave some informal talks on what CCI is doing. The developer of Fumba Town, Fumba Town, is a town that’s about 30 minutes south of Stone Town, the main city in Zanzibar, about 20 minutes south of the airport. He’s got 60 hectares of land, so 150 acres, and had built about 600 units, a variety, some houses, some one bedrooms. We met the local developer, the CEO’s name is Sebastian, the company is called CPS, and he’s building Fumba Town. It’s about 30 minutes south of Stone Town, the primary city, 20 minutes south of the airport. They built about 600 units, a variety of units, in terms of studios, up to luxurious waterfront villas.
We talked about CCI, talked about urban expansion, how to create improved special economic zones, improved governance to accelerate. He realized like, “Oh, this is great. This really lines up with my vision, what I’m trying to do.” Last summer, I believe it was August, maybe July, we met the president of Zanzibar. Zanzibar is, it’s not a country, it’s part of Tanzania, but it’s like Hong Kong was, until trying to pass the national security law. It’s one country, two systems. Because historically, it has been independent. Zanzibar, while it’s part of Tanzania, has a lot of local authority to deal with local issues; diplomacy, monetary policy is at the union level, but there is a pretty wide swath of area that’s at the Zanzibari level.
We met with the president. Just for a little bit more context, Fumba peninsula is a peninsula south of Stone Town, the capital, and the peninsula is about 3,000 hectares, so almost the size of Manhattan. Quite a large amount of land. It is a special economic zone that was set up 30 years ago. We talked, met the president, talked to him about, “Look, how can we improve the special economic zone? How can we build a proper satellite city here? What would this look like?” The president said, “This is our dream.” Set up a task force to execute on it.
Since then, we’ve had a number of our team members move to Zanzibar voluntarily. I think they just realized like, “Hey, maybe Zanzibar might be a little bit more fun than DC.” We’ve got, I think, four or five people on the ground there. We’ve started working on a number of initiatives. In thinking about city development, this is a little bit of a challenge and the opportunity is there’s a lot of different moving pieces. One is how do you get the governance right, make it easy to business, make it easy to build new things? Two is how do you get land? Three is how do you get the people there? What is your target market? Four is who are the businesses and tenants that we’re going to move? CCI is helping to tackle a lot of these different issues.
In terms of great people, we’re hosting a festival, a five-week festival called Zanzalu. This is inspired by Zuzalu. Zuzalu was a two-month pop-up city in Montenegro last year organized by Vitalik Buterin. They got 200 people for two months and then about 100 people coming in and out. It was interesting in the sense that there was a pretty high density of talent, very interesting conversations. It was a lot of fun.
Inspired by that, we’re organizing this five-week festival in Zanzibar, where we’re going to bring 75 to 100 people there. We’re partnering with a local university, the state University of Zanzibar, going to teach some workshops on blockchain. Zanzalu is separate from CCI, but lots of CCI people are involved. We’re going to have a government weekend. We’re going to have a startup weekend to bring companies, startups as well, small and medium prize enterprise to Zanzibar, just to showcase, “Hey, look. Here’s what’s building, here’s what’s going on, like Zanzibar school. Maybe you want to relocate. Maybe you want to spend more time here.” Just increase the funnel of talent.
Another thing that we’re doing is CCI is partnered with the African School of Economics. The African School of Economics is a university founded by Leonard Wantchekon, who’s a professor at Princeton. They have campuses in Benin, Cote d’Ivoire, and Nigeria. CCI is helping to open their first campus in East Africa. There, in addition to the campus, we’re also opening an African urban lab. The idea is, at least with what CCI is working on, is creating this teaching hospital, but for economics and economic development and urbanization.
There, we’re starting with a professional degree program. That’s going to start in the fall. Then the following year, we’ll start with a master’s program. What we’re doing of a long-term vision is for this to be a top-tier research university. I was speaking to Leonard recently. He was like, “Yeah, everybody I talked to was like, “Yeah, I’d love to come teach in Zanzibar. I’ll teach there for a few weeks. I’ll teach there for a semester.”” It’s a pretty easy sell to say like, “Hey, come and hang out in Zanzibar.” I think we’ll be able to attract a lot of teaching talent, and we’re currently thinking through how to attract students, how to set the budgeting, how to set financing.
That can be an anchor tenant in this city development, because universities attract a lot of people. You need housing. It makes the area dynamic, kind of a hub of innovation. We are also partnering with CPS, the town developer, right? They have 60 hectares. They have planned for 30 of it. We’re working with them to plan the next 30 hectares. Who are the target markets? One thing about the town is currently the cheapest units are $40,000, which is quite affordable for an American. If you’re Zanzibari, it’s probably out of your price range. One of the things we want to do is figure out how to make more affordable housing, how to make it accessible to the average Zanzibari.
We’re thinking about how to create a mortgage market, because right now in Zanzibar, other financial institutions aren’t very developed. How to create financial institutions to allow Zanzibaris to take advantage of these opportunities? Thinking through how to push the price point down. We were on a task force with the government last year to update their investment law. Currently, they’re setting up a task force on the special economic zone law to figure out, okay, how can we improve this special economic zone law to make this zone more dynamic, to attract more investment? Then we’re working with the Zanzibari investment promotion agency, which manages the special economic zones.
We’re working with them on a strategic plan to lay out, okay, how do we really take advantage of the value that Zanzibar can provide? How do we attract investment? How do we create jobs for Zanzibaris? How do we make this economy a lot more dynamic?
Jeffrey Mason: A lot of different moving parts here. Tie this all back up in a bow and in, say, 10 years, or whatever timeline you feel is appropriate to comment on.
Mark Lutter: Yeah. Our goal in the 25 years is to have a satellite city of about 80,000 people. Zanzibar will add 800,000 new urban residents over the next 20 years. 10% of that, most of them are going to be in, or around Stone Town, which is the major city on the island. Currently, most of them are living in basically, informal settlements. When you drive through, you can see these settlements. They tend to be relatively dense the closer you get to the city. Oftentimes, they might struggle with running water, or sewage, or electricity. This is part of pushing the price point down to basically, offer an alternative to these people. Otherwise, might be living in informal settlements. But now you can live in something formal, where you do have running water, electricity, sewage, the important standards of modernity.
Jeffrey Mason: And property rights.
Mark Lutter: And property rights. We think we can capture about 10% of that population. That’s our goal. In addition to that, we want to make Zanzibar, and particularly Fumba Town and Fumba City a hub for innovation in East Africa. Currently, Nairobi is the startup capital of East Africa. What we want to do over time is really expand on the Silicon Zanzibar initiative to attract companies to relocate, to attract people to relocate, right? In addition to the African School of Economics, there’s also the State University of Zanzibar, which we are partnering with on Zanzalu. Then there is the Indian Institute of Technology. They open their first overseas campus ever. It’s located about five minutes from Fumba Town. They open last fall.
There is already a good university core there that’s being developed and being built out, which is a really important part of an innovation ecosystem. Part of this doing events, promotion work is figuring out how to identify like, who are the people who might relocate to Zanzibar? Maybe it’s for a second home, or maybe it’s full-time. How do you get that critical mass of people? How do you attract people from Dar es Salaam? How do you attract people from Nairobi? How do you attract people from South Africa, or other places in the region to make this a really dynamic hub?
I guess, a 10-year vision is twofold. It’s one, create a really dynamic hub of innovation in East Africa. Then two, it’s also, how do we push the price point down on this development to make it accessible to the average Zanzibari? Our hope is demonstrating this partnership with government, this partnership with local institutions, this affordability, this dynamic economic engine can help convince other countries, “Hey, this works.” Let’s figure out how we can take some of the lessons here, go work in mainland Tanzania, go work in Kenya, go work in other places that are facing similar challenges in terms of creating jobs, attracting capital and creating housing for rapidly growing populations.
Jeffrey Mason: In thinking about attracting not just the digital nomad-type model that you do see a lot of Red City projects target, or look at, but pushing the price point down and serving this local population, what are some of the other viable economic opportunities in a place like Zanzibar, beyond this information ecosystem?
Mark Lutter: Yeah. Right now, Zanzibar is largely a tourism economy. There can definitely be even more tourism. In addition to that, you want to diversify your economic bucket. The special economic zones in Zanzibar already have low taxes, and figuring out how to provide effective infrastructure in terms of roads, ports, right now the primary port in Zanzibar is in Stone Town and driving there like a downtown Stone Town, so the roads are always pretty clogged. How do you figure out, okay, there is some seaweed production that’s then exported, there is fishing, but how do you start going one step up in the supply chain?
How do you do early-stage processing in Zanzibar? Like, early-stage seaweed processing, maybe fish processing, whatever that might be? We’ve started looking into that. We haven’t gotten super advanced there, but starting to lay the groundwork for like, how do we start to – because yeah, the information technology is great, but that’s not going to be available to the average Zanzibari, who just doesn’t have the educational background, who doesn’t have the access to really become part of it immediately.
Historically, development typically comes in stages. You start with early-stage industrialization and then move up the supply chain over time. Identifying, all right, what are the key comparative advantages of Zanzibar? How can we attract those businesses, both internationally, as well as help grow existing businesses in Zanzibar to start meeting that market, to start exporting more, diversify away from tourism, so it can become a full-fledged dynamic economy with those different parts? We believe this is part of this broader economic strategy that we’re helping with Zanzibar investment promotion agency on their strategic plan, as well as identifying these local partners on the ground.
There is already, for example, a port on the Fumba Peninsula, figuring out what that port’s capacity is, what that growth plan is, how that might link into these other elements of economic development that are taking place.
Jeffrey Mason: Now, let’s jump across a notion or two and talk about the Caribbean and what you’re doing there with your company.
Mark Lutter: Sure. I guess, to back up a little bit, I left the Charter Cities Institute about two years ago. I’m still executive chairman, but I’m no longer that involved in the day-to-day. The impetus for that was this project in the Caribbean, where a concerned resident reached out to me and basically said, “Look, we have an existing special economic zone that’s not doing as well as it could be. The government’s interested in modernizing it, reviving it. There’s a lot of available land. There’s a great location. Infrastructure is good.” I was just like, “Holy shit. This is amazing.” A lot of the challenge of charter cities is location. You can have the best institutions in the world, but if they’re in Antarctica, nobody’s going to want to live there.
Institutions have exists in a specific place, in a specific time to serve the needs of people. You need to match the institutional environment to the economy, to the local population, to all of these dynamics, to ensure that it can be plugged into regional supply chains, to regional migration patterns, etc. This was a fantastic opportunity. We met the prime minister a handful of times. Brought some investors down. Prime minister was quite interested. Unfortunately, it’s a very complex multi-stakeholder engagement, and we lost a little bit of momentum.
What’s happened recently is that momentum has started to pick up again. We’ve identified some very strong local partners on the ground, including a landowner and a local entrepreneur, who have existing relationships with governments, have some of the resources necessary to really execute on this project. We’re starting to chat about it a little bit more. Right here, the short-term vision is what the government wants is jobs in tax revenue, right? What the people want is jobs.
The island has had pretty bad luck with hurricanes, and it’s 60 miles from the US, and there isn’t a single four-star hotel on the beach. With that location, with beautiful beaches, turquoise water, tourism is really low-hanging fruit. What the government wants, what the people want is immediate job creation. How do you start with that? The island also has a small industrial sector, as well as a small logistics sector. It’s really, how do you pick this low-hanging fruit and start to accelerate it, right?
The long-term vision is to make this a tech hub. Everybody wants to build their own Silicon Valley, but basically, nobody succeeds, because Silicon Valley isn’t about buildings and buildings and calling it Silicon Valley, or Silicon whatever. Silicon Valley is about the people and the relationships. Long term, what we are starting to do is build out those relationships with the entrepreneurs, the investors in Silicon Valley who might open an office there, who might have a second home there, right? Whatever that might be. Once you get those personal relationships built out, once you get that, then it starts becoming an attractive tech hub.
This island, when we spoke with the Prime Minister, we talked about figuring out how to expedite work in residence visas. The US, lots of people want to live in the US, but the US has a relatively complicated immigration system. We believe that this could be quite attractive to people who want access to the US market, labor market, capital market, etc. But might struggle to get in the US, because of the US stringent visa system, might not want to locate in the US because of the US tax requirements.
Figuring out how to attract those people over the long term, at the same time creating jobs for the locals and helping attract some who might have left to other islands, or other countries just because of a lack of opportunity on this current island.
Jeffrey Mason: What is this timeline on that look like?
Mark Lutter: Hopefully, an announcement this summer, or this fall. There’s a lot of on-the-ground stuff that has to be worked out. But we’re chatting with investors who are quite interested. Some of our partners are discussing with other local landowners in terms of how to figure out how to structure a transaction in a way that benefits all parties and can really unlock this value.
Over the last few months, things have picked up substantially. I’m spending most of my time on this island in April. Then I’ll be spending a lot of time there over the next six months. We’re starting to fly in some of our experts to meet some of our local partners. Our local partners are coming to Silicon Valley in late April. We’re really trying to figuring out like, all right, how do we create this framework to work together? How do we structure this deal in a way that all the stakeholders are happy with, and really creates this growth engine for the country, as well as the region?
Jeffrey Mason: One of the things we’ve seen in places that have successfully grown quickly, say over the course of the mid the 20th century, a place like Singapore, Dubai, something like that. These quickly developing countries that really were quickly successful, they, to varying degrees, relied on a motivated, competent and highly aligned state. Whereas, a lot of the places, social or policy entrepreneurs, whatever you’d like to call them and try to work in South Africa, or other places, the capacity isn’t there. You could definitely do a lot worse than Zanzibar, or in the Caribbean where you’re looking at, but still in the grand scheme of things, relatively in the lower end of state capacity.
I think this charter city idea falls in that big push camp. How do you get a project like Zanzibar, like Fumba Town in Zanzibar, or like what you’re trying to do even in the Caribbean, how do you push it across the finish line in a challenging environment, from an institutional, or capacity point of view?
Mark Lutter: Yeah. I think a lot of it depends on the local context. So far, when we’re meeting politicians, heads of government, there’s generally excitement about what we’re trying to do. A lot of the challenge comes down to the politicians and heads of government have a lot of demands on their time. Then when we start engaging the senior officials to partner with, oftentimes, because this is a new idea, it doesn’t fall neatly in one bucket. It’s like, okay, is this my bucket? Is this somebody else’s bucket? There’s a little bit of a, let’s call education process to communicate, “Okay, this is what we’re trying to do. This is the vision. This is how it interlocks with these different departments.” That just requires a lot of elbow grease and work on the ground.
There’s no magic wand. It requires spending time on the ground, working closely with these people that requires demonstrating. You have the financial commitment. You have energy around it, right? One of the things, for example, in Zanzibar, what we’re hoping is that Zanzalu, it’s easy enough to set up a meeting when it’s just you two people and a minister. The minister says, “Okay, this is cool. But then, sometimes things get lost in the next steps.” If you get 100 really smart, interesting people show up, you have media attention, people are going to pay a little bit more attention to your proposals, to what you’re doing.
When you partner with locals who are some of the most successful investors on the island, the government’s going to be a little bit more interested in what you have to say, right? When you can bring investors that have the potential to move very large amounts of capital, the government’s going to listen a little bit more closely. A lot of it is, the wrong way to put it as social engineering, but like, how do you create this social dynamic, this proof of credibility to local stakeholders to get them to buy into the vision and to get them to understand what you’re bringing to the table, what their role is.
There’s no one easy way to do this. For example, in Zanzibar, as we’ve been talking about, what we’re looking at is, okay, we do Zanzalu. We’re going to do a city builders retreat to bring some of the top city builders in Africa in late June or July. We’re starting a university. All of these things open doors that make people take us a little bit more seriously. They get a little bit more buy-in for the broader vision.
One of the things we should also do is figure out how to tell a website of, get a website for Fumba City. Because as even we’re talking, I sometimes don’t even remember all the different components of what we’re doing, how do we tell that story really cleanly and effectively to build up that local consensus that this is good, people benefit, this is creating this type of value? In the Caribbean, what we’re looking at doing is after we can get a contract for the relevant assets, what we would explore is, okay, now, how do we make this very compelling to the government? Not just there’s going to be an asset transfer, but there’s going to be an asset transfer for new shareholders.
In addition to that, all of these other things happen, right? What that would look like in particular, we’ve already started talking with the university about opening a research center there that can eventually grow into a full-fledged institution. We’ve had very early conversations with people about opening an office there. We’ve reached out to potential airport partners, to potential resort partners. That way, as we’re doing due diligence on the asset before we close, and we’re talking about government, how do we modernize this special economic zone? How do we make it really dynamic, really business-friendly? We can say, “Look, we’re not just doing this, but we also have all of these other stakeholders, potential investors lined up.”
When you modernize it, it’s not just like, oh, here’s some promises, but oh, it’s going to be modernized, and then you’ve got a resort partner, and then you’ve got a research center, and then you’ve got 30, 40 small, medium-sized enterprises that want to open an office there. Then you’ve got these startups that might want to relocate there. That just makes it much more attractive to the government, because it’s much less of a risk to them. That way, they know the population will benefit. They know that they increase their chances of getting reelected. It becomes, I think, a much stronger value proposition to them.
A lot of this is this massive coordination game of how do you line up all these people, and how do you get them to start cascading, such that by the time you actually have the jurisdiction established, you’ve got a huge amount of momentum. You create a lot of jobs, you create tax revenue, everybody is happy, and you can start the process to building a wonderful, globally competitive city.
Jeffrey Mason: We’ve talked a bit in detail about what’s going on in Zanzibar, with CCI and the Caribbean with Braavos, your company. What else, for folks who are broadly interested in the space, or just want to go follow where the most realistic that the best projects are, what should people be paying attention to, or looking for over the next one to five years?
Mark Lutter: Well, I’m biased, so I would say, Zanzibar and the Caribbean. Maybe before answering that question, just to go into a little bit more depth about Braavos, the goal of Braavos is to be the charter city development company. The role we hope to play in Zanzibar, what we’ll likely do is raise a small fund, 20, 30 million dollars as basically, a city development fund. That will be committed to additional land acquisition, to strategic investments. Maybe we realize, okay, look, if we build some of these buildings faster, we can sell them.
Currently, they’re being built on pay-as-you-go plans. If you want to buy a house, you put, let’s say, 20% down, you pay over three to five years, they build the house while you’re paying. Maybe you can build faster if we can create some financing instrument that says, okay, we’ll build it and we’re confident the demand is there, and then you move faster. A lot of the question in some of these projects is, all right, we’ve got the location, we’ve got some of the initial alignment, but how do you start pushing the accelerator?
In the long term, the goal is, once we get the Caribbean project closed, once we have Zanzibar really accelerating, then with Braavos, what I’m hoping is that once you have that credibility, currently, the charter city space has been a lot of pushing, right? Pushing on local governments, pushing on local stakeholders. Ideally, it gets to a pull situation, where people reach out to us, governments reach out to us, land owners reach out to us and say, “Hey, look. We have this opportunity. Do you want to partner with us?”
As we build up both the credibility, as well as the financial resources, we believe by having some of the most successful projects in the space, we can hopefully become a long-term global partner for governments and for people in terms of developing new cities and related projects. I’ve been spending a bit of my time thinking about like, okay, what does it mean to actually scale this? You’ve got the initial projects off the ground. How do you build the team? How do you build the brand? How do you build the relationships? It takes me two to three years to learn a new skill.
I was terrible at negotiating in the Caribbean when I started. Now, I think I’m like okay at it. I’m not sure I’m great at it, but I’m not terrible at it anymore. I was terrible at managing when I started CCI. Now, I think I’m good at it. As we’re building up this knowledge, this skill set, how do we start building up the broader team to be able to execute on these opportunities? Because Africa alone will have one billion new urban residents over the next 30 years. There is a massive market out there for better housing, for better cities and figuring out how to provide these services to this market, I think is really critical for a better future for humanity.
I guess, to your broader question about what other projects outside the ones that we’ve mentioned, am I interested and excited about? What does this space broadly look like? We’ve mentioned some of them already, right? Tatu City is doing very well. It’s probably the best. It’s not really a charter city. They have a special economic zone, but it’s got definitely charter city elements. That’s definitely one to look at.
Another one that attended our conference, that their CEO is advisor to CCI, Jon Vandenheuvel, Small Farm Cities, they’ve developed a model to start small, basically build tomato farming, tilapia farming for 100 people and 1,000 people and 10,000. They’ve developed a really innovative, scalable model that I’m really looking forward to see how it progresses. You’ve got other projects adjacent, right? You’ve got California Forever in California. That’s acquired a huge amount of land an hour to northeast of San Francisco. There, I think working on a referendum this summer, or this fall to get local buy-in that will allow them to start development. Though, I don’t think that would be sufficient, because you also have CEQA lawsuits, the California Environmental Quality Act, right? It’s really hard to build things in California, but their team seems quite strong, so I hope they succeed.
I’ve got a friend who’s working on new city projects in Texas, looking at acquiring land outside of Austin. I mean, Austin and San Antonio and like the Zanzibar model, starting small, getting proof of concept and acquiring additional tracts of land as it grows. The projects that folks are probably more familiar with, you’ve got Prospera in Honduras. I was down there about a month ago. I think they’ve recently got a lot of momentum with Vitalius starting to really attract potential residents, get businesses to relocate there. They recently survived the main challenge of the government trying to basically ban them. The government need to pass legislation twice. They passed it once, but they didn’t have the votes the second time, so they solved the immediate hurdle, but the government is still hostile. I think they need to figure out how to, I don’t know if it’s cut a deal, or get that longer-term staying power, because when you have that hostile government, it’s really hard to grow, even if there is some energy and excitement.
You have Praxis, which is looking at acquiring land in the Mediterranean and has been quite successful with fundraising and early-stage development and community building. I think they’re saying that they’re planning to make announcement this year, if I remember correctly. Hopefully, they’ll be able to make a strong announcement, get land and get moving. I guess, the other part of this space is like Zuzalu, the pop-up city model and the network state model added a lot of energy and interest in this space. It’s not fully charter cities, but it’s adjacent to it. It does provide one of the initial challenges with new city development is how do you get that initial critical mass?
If you can host events over several months, get hundreds of people to show up, right? They’re not all going to stay, but you get a handful of them who stay and they tell their friends about it, that can really help with the initial critical mass building. We’re seeing Prospera use it as a tool. We’re using it as a tool in Zanzibar. We’ll probably use it as a tool in the Caribbean. It is a very useful tool for brand building for initial residential traction. That’s added a lot of energy, excitement, and dynamism.
If we think about the broader space and its potential success, to place it in the broader geopolitical context, when I started CCI, the China threat was looming large, but it was still at the peak of Pax Americana. Now I think it has become clear that Pax Americana is probably in decline, right? The truth is, some non-state actor is able to shut down a major shipping lane. We’re seeing with Russia and Ukraine, with Israel, with the potential in Taiwan, a lot of these regional challenges, right?
When I think about what that means for charter cities, as unipolarity recedes, we’re going to see a lot of regional experiments. Some of these will be charter cities, but some of these won’t, right? It’s just going to mean a lot of different regional governance things happening that were probably a little bit suppressed in the unipolar world. I think charter cities are one of those institutional innovations that I think governments will be a little bit more receptive to that can potentially help provide a lot of this, I don’t know, interest excitement capital to help some of these regions that as uncertainty rises, they can figure out how to serve their citizens better by creating these opportunities, by creating this investment, by unlocking this potential.
If I think about what the charter city space looks like over the next five years, over the last two or three years, we’ve seen a lot of initial traction. But none of that initial traction has really hit escape velocity yet. It’s all early-stage startups. I think the key over the next five years is for some of these projects to hit escape velocity. How do you actually get cashflow positive? How do you start paying back investors? How do you get good residents? How do you get good tenants? How do you get good businesses to relocate there? As that model is proven out, as it’s demonstrated, you get a lot more investor commitment, you get a lot more governments being open, you get people more willing to move, companies more willing to relocate. I think the next five years, what people should watch for in addition to the Caribbean in addition to Zanzibar is just like, our projects hitting this escape velocity. Are they really getting there? Once they get there, I think we’ll see this phase really blow up.
Jeffrey Mason: That’s exciting. I can’t wait to see it blow up. Mark, thanks for chatting.
Mark Lutter: Thanks for having me.
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Kurtis Lockhart: Thanks so much for listening. We love engaging with our listeners, so please always feel free to reach out. Contact information is listed in the show notes. To find out more about the work of the Charter Cities Institute, please follow us on social media, or visit chartercitiesinstitute.org.
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