China creates new trade route through Nicaragua canal

China creates new trade route through Nicaragua canal

Construction on the Nicaragua canal is set to start in December. The government has proclaimed it to be an economic panacea.

When the Nicaraguan National Assembly approved legislation with HKDN Group to build a 123-mile long interoceanic canal to rival the Panama Canal in June 2013, it did so without a semblance of opposition.

Daniel Ortega, the Central American nation’s Sandinista president now entering his 8th year in power and showing few signs of slowing down, personally pushed through the $50 billion, 5-year mega-project with the Hong Kong-based head of HKDN, Wang Jing. In fact, the legislation approved by the Sandinista-controlled National Assembly, granted sole ownership of the project to Mr. Wang and a 50-year concession for its operation, eligible for renewal for up to a 100 years.

With few political obstacles to the deal’s approval, Ortega’s government embarked on a public relations campaign to win over a skeptical population. The canal, say the government officials, will create 50,000 jobs during the 5-year construction period and an additional 200,000 jobs once the canal is operational.

Moreover, they have estimated that the economic output resulting from the canal’s construction will reach sky-high rates of 14 percent annually. In the second poorest country in the Western hemisphere (behind only Haiti), whose half of 6 million inhabitants live in poverty, this is no small offering.

Yet, the Nicaraguan people are skeptical of the offer and have taken to protesting and calling the project a cuento chino, a Chinese tale or a lie. As it turns out, Nicaragua has a history of interoceanic canal lure. The country was thought to have been the American favorite for such a project dating back to the 1800s, until the matter was settled with construction in Panama in 1902.

The proposed canal route which was unveiled in July, would stretch from the vast wetlands of Nicaragua’s Caribbean coast through its largest lake, Lake Nicaragua, and out into the Pacific Ocean. The country and its Lake Nicaragua would effectively be bisected, affecting access to the lake’s fresh water (the country’s largest source) and in the process 100,000 inhabitants would be displaced from their ancestral lands.

HKDN has hired the British consulting firm Environmental Resources Management to conduct an environmental impact study, which remains pending, and McKinsey and Co. for a feasibility study. The Nicaraguan Academy of Sciences, however, has estimated that a million acres of tropical forest and wetlands would be destroyed by the canal’s construction.

Few doubt the need for greater interoceanic linkages. Since 2007, efforts to expand (and double) the Panama Canal’s capacity have cost $5.25 billion. A recently inaugurated class of freight ships known as the ‘Triple-E’s’ carry some 18,000 shipping containers and are an attractive option for their favorable cargo to fuel consumption ratios in what is a $210 billion shipping container industry, but they are too big to navigate the Panama Canal. HKDN and Nicaraguan authorities have said that they will be the alternative port of call for such ships.

In a partnership that has kicked up considerable intrigue and speculation, the motives for this project and are of equal interest. Nicaragua is in a small club of leftist Latin American nations, alongside its long-time benefactor Venezuela. Any effort that both offers an opportunity to stymie an American proxy in the Panama Canal and enrich the close circle of Ortega’s beneficiaries is a good bet.

For the Chinese, the motives and benefits are also clear. Wang Jing is a telecommunications magnate, with no obvious experience nor expertise in canal construction. Yet, little doubt exists that a project of this magnitude, dubbed the largest construction effort in the history of mankind, has the backing of the Chinese state. The canal project fits the pattern of recently announced infrastructure projects going forth in the Latin American region with Chinese financing.

The intention can be perceived as two-pronged. China needs to cheaply transport the billions of dollars of minerals it imports from the continent and the Panama Canal is an increasingly expensive option, as the cost of shipping there has tripled in the past five years. The Nicaragua canal and other projects can also be viewed through the lens of geopolitics, where China is countering US efforts to pivot to Asia by asserting its importance in the United States’ traditional sphere of influence.

Whether the construction of the canal, scheduled to begin this December, will be the panacea the Nicaraguan Comandante has proclaimed it to be, the people of Nicaragua will likely never get to decide. Rather, it appears that those who stand most to gain and least to lose from the project have already decided for them.

Categories: Economics, Latin America

About Author

Sanja Davidovic

Sanja is an international development professional whose research and writing focuses on issues of political economy of conflict, state building and security sector reform. She holds a Master of Science from the London School of Economics in International Development and Humanitarian Emergencies and a Bachelor of Arts in International Relations from Fairfield University.