A Business case with Social Impact for floating zones
Updated: May 12, 2020
On May 1st and 2d, the Startup Societies Foundation held a Virtual Summit on Special jurisdictions after COVID-19. Our CEO, Nathalie Mezza-Garcia, who is the Managing Editor of the Journal of Special Jurisdictions, co-organized the conference. She also presented an economic development model for coastal cities based on blue cleantech. Here is the blog/transcript of her speech.
A few years ago, I was lucky to be involved in the first attempt to make a floating Special Economic Zone. The idea was to give a special regulatory framework to 7,500m2 of French Polynesia’s territorial waters and populate the area with floating buildings. The name of the project was the Floating Island Project in French Polynesia. It emerged from the signature of a Memorandum of Understanding between the French Polynesian government and the Seasteading Institute. However, the company Blue Frontiers, which I worked for until two years ago, led it. I was the project’s international spokesperson. That is, my role was to speak about the project everywhere but in French Polynesia. Marc Collins Chen, today Oceanix’s CEO, was in charge of all French Polynesian relations. As the projects’ international “sea-vangelesse”, I hosted the project’s podcast and wrote occasional blogs. I also presented the project at events, spoke to the press and hosted meetups in several parts of the world. My work led to hundreds of news articles written about the project, on every continent and in more than 15 languages. However, this is not the reason I considered myself lucky. I say I was lucky because I had two hats. While being the project’s spokesperson, I was also doing my PhD about the project. This dual role –being spokesperson and researcher– enabled me to understand the multiple angles of this project, holistically. My background in complex systems additionally helped me to understand, tautological as it sounds, the project’s complexity. I grasped, perhaps better than anyone else, the interrelation of the project’s economic, historic, infrastructural, legal, political, technological and environmental aspects. These two simultaneous hats gave me unique insights into how to set up and how not to set up a Special Economic Zone and, most importantly, how to set up and how not to set up one that floats on the water. Broadly, very broadly, speaking, I have found 5 key points that make or break whether a project is successful. The first one is having and promoting local participation. This is especially true the more innovative a project is. Local participation is different from being internationally funded. Funding can be international, development can be international, but a project can still be locally-led. The second point is having good government relations –especially at the local level. Third, partners and parties should be trustworthy and have a solid reputation. The fourth point is economic self-sufficiency. This includes being privately-funded as well as having a business model aimed at long-term economic growth. And last, but not least, it is necessary to have a well-scouted location. We can summarize these 5 key points as
“floating developments and special economic zone projects should have a coherent business plan that matches the social, economic, physical and ecologic characteristics of the location and all the stakeholders involved –including those stakeholders who are not directly part of the project.”
Making part of the business plan those local stakeholders who are not part of the project is critical. But it is also important to simply have a business plan. Believe it or not, I have seen some cases of projects that lack any. Without a business plan, projects only have a beautiful render. And, indeed, projects can and have gone very far only with a beautiful render. However, they often don’t manage to successfully take it from design to implementation unless there is a matching business plan –and if they do the maths, test the market, and have a strategy that considers my 5 key points. If we look back, there have been several attempts to build floating projects with a governance component. However, many of them have failed because they do not approach the project in the right way. Either they have not involved the local community, they have not understood the complexities of the location, local partners have not been trustworthy, or they have commenced without the consent of the government. Additionally, several of these projects have not had a simple answer for the two most common questions: Why floating? And why governance? Having a business plan helps address these questions by building the project around an idea that makes market sense. It is important to understand the problems of previous floating and maritime Special Economic Zones to reduce future chances of failure. Starting from there, here I share a short to long-term way in which floating special jurisdictions can help rebuild local economies post-COVID-19. By floating special jurisdiction, I mean multiple floating buildings with special regulatory incentives. Note that I do not mention floating cities nor seasteads, even though that’s the end goal of many of us players in the field. This is because I rather take a more business-oriented approach. Instead of floating cities or seasteads, it is more feasible to begin with floating neighborhoods.
Creating a floating city requires a government. Creating a seastead requires multiple governments. But building a floating neighborhood with some governance components can begin with private actors. This is where the business plan comes into place.
Zone developers and zone entrepreneurs who wish to build a floating neighbourhood could resort to something similar to a project I’m working at the moment with Blue21 from the Netherlands; one of the top floating engineering, architecture and developments firms in the world. The project consists of a floating blue cleantech accelerator. This project aims to achieve economic profit through and with sustainability. As Karina Czapiewska, from Blue21, says, what we are doing is
“combining incubator/accelerator for the blue cleantech with a state-of-the art sustainable building”.
Our aim is to attract blue cleantech startups working on the maritime cleantech industry. That is, we target companies working on biofuels, renewable energies, food, materials, recycling, transportation and mobility, waste and water, algae, etc. We seek to attract them by providing them with a place to test out their technologies on the water. Additionally, the accelerator would provide a “startup as a service model”, making it really simple for startups to locate there. We will offer easy registration, accounting, tax filing, legal and patent registration support, etc. All the administrative processes which often slow down startups, we would provide it for them. Now, with the floating building, we aim to test the design of a building which would raise or lower with the water level. This is key for coastal areas, affected by erosion and rising seas. The building would be modular, and it would be built with sustainable materials. Blue21 is designing it so it has a beneficial effect on the maritime ecosystem. We will implement real-time water quality monitoring with underwater drones and we would power it with renewables energies. Karina Czapiewska from Blue21 explains: “with the floating building we would educate visitors about sustainability and climate adaptation”. Our aim is to turn the floating accelerator’s location into a regional and global referent of innovation and sustainable urban expansion. I begin with sustainability when discussing governance after COVID-19 because coronavirus has evidenced the interrelation there is between human health and the health of other species and ecosystems. As some scientists have pointed out, coronavirus is a wake-up call because the next global threat will likely not be a pandemic. It will be climate-driven. Therefore, some of the best economic growth ideas post-COVID-19 will have a strong sustainability component. Sustainability is one reason why at Seaphia we focus on floating developments. Floating buildings can expand densely populated coastal cities without increasing traffic congestion or deforesting. They also provide a more attractive real estate.
Floating developments are ways for startup societies and special jurisdictions entrepreneurs to innovate at a city or community level. Remember, innovating in governance does not need to begin at the level of regulations. The starting point can also be infrastructure.
Developers with runways more finite than not can begin with a building and then scale up using zone frameworks if they cannot commit the few million that it costs to set up a zone. If the developers do not have the economic resources to conduct a constitutional or regulatory change, they can seek the same benefits easily given to existing zones or to nearby manufacturing areas and ports. Using existing frameworks avoids having to navigate nested institutions and multiple levels of stakeholders. In turn, this makes smoother the navigation of the waves of events that often permeate innovative projects. By simplifying the idea and ask, developers focus only on the local level, either the city or the municipality. Applying a zone framework to a floating building can attract more Foreign Direct Investment by appealing to companies that don’t have a competitive advantage by being on other water. This stands, regardless of whether the floating project is a floating port, conglomerate of restaurants, market, museum, hotel, wedding reception center, etc. These type of businesses can benefit from first starting with a building and then scaling up to a zone. Of course, developers can negotiate with governments. They can try to reach agreements based on the amount of FDI a project attracts or based on how projects increase nearby land value. Regardless of the route, it is important to remember that the success of special jurisdiction projects, floating or not, can be broken down into two key things: 1. Businesses need a good climate 2. And cities need to attract people Therefore, whether you are a zone developer or a local government, it’s all about getting tenants. In my project with Blue21, the floating building with the accelerator and the startup as a service model would attract tenants. However, the accelerator would propel the entire blue cleantech ecosystem. The special zone framework would bring influxes of capital to the city where it would locate. The bottom line here is to treat the zone as a startup –it is a startup society, after all. so: First, have an idea. Then, turn it into a business case. Find some local and international partners. Get some seed capital. Create your MVP. And scale it as it succeeds. The same applies if the starting project is a floating market with restaurants on top. This approach might not sound too interesting if people want to see seasteads or cities for 10.000 people spur from one day to the other. However, for or others, it might sound refreshing.
My aim is that we realize that projects will not succeed if they attempt to create a floating city in the middle of the ocean. They will succeed if they manage to create a prosperous neighbourhood that brings innovation, tourists and economic growth to the city the floating neighborhood it is part of.
All goes well, you can use the Startup Societies Foundation’s methodology for expansion Areas. In this model, projects share land lease revenue with neighboring communities. Therefore, they share the economic benefits of the Zone with areas nearby, and both areas increase together in land value. This is great for projects which have local stakeholders that might not like the nature of a project, such as fishers in the case of maritime projects or other communities nearby, who see the project as disruptive of their ways of living. But if these stakeholders’ economic growth ties to the economic growth of a Zone (without assuming that profit is the only motivation), then the value of the land of the nearby communities will grow with the project and its scaling. Just remember:
economic growth and special jurisdictions post-COVID-19 should go hand in hand with sustainability because we won’t find a vaccine for climate change.
I would like to thanks to Annie Eby for her edits and suggestions on this blog.