A Man, A Plan, A Canal… Nicaragua? China’s Poor Prospects in the Region

Andrew Karns, JHU:

Nicaragua closed up the year 2014 with the launch of construction on their new 172-mile canal. The inter-oceanic Nicaragua Canal, which is planned to be larger, deeper, and consequently more competitive than the longstanding Panama Canal, will commence at the city of Punta Gorda on the Caribbean coast, open into the massive Lake Nicaragua, and empty into the Pacific ocean at the city of Brito. Nicaragua’s left-wing Sandinista president, Daniel Ortega, has welcomed the project as a boom to the Nicaraguan economy that will, in the long term, put an end to widespread poverty and stimulate enormous growth in the troubled Central American region.

But, as the Colombian periodical La Semana puts it, rather than becoming a vital artery for Central American growth, it has the potential to become a terrible scar on the heart of the region.

One of the first contentious points of the canal is its immense unpopularity among Nicaraguans themselves. Ever since plans for construction were finalized, there have been ongoing protests against the government for having approved the deal. Major signs of discontent first erupted when scores of farming families were displaced when their lands were expropriated to HKND, the private Chinese firm overseeing the construction. The vast tracts of agricultural land, which were originally used to grow crops such as corn, beans, and bananas, have been largely cleared to make way for access roads and the canal’s planned course. Because the terms of the agreement stipulate that everything within 10 kilometers of the canal is open to expropriation, there are growing fears among Nicaraguans that more properties will be seized.

In addition to disrupting the livelihood of agricultural families, several experts, notably those of the Nicaraguan Academy of Science, have expressed a serious concern over the canal’s environmental impact. To reduce its cost, the canal was designed to run through Lake Nicaragua, which would act as the body of water that completes its course. This lake is one of the largest tropical lakes in Latin America, but it is also a freshwater lake. Its exposure to oceanic waters, as well as the risk of contamination from the expected traffic of ships, threatens its biodiversity and can even have an impact on Nicaragua’s drinking water and irrigation systems. HKND, for its part, has given assurances that it conducted a complete environmental survey to ensure that its impact would be minimal. However, the contents of HKND’s study have not been made public, and La Semana reports that one individual who contributed to the study stated, on the condition of anonymity, that HKND did not invest enough time and resources to the study for its results to be considered reliable. He commented on the company’s militant commitment to move forward with the project:

“The studies will say that there are certain things that should be taken into account, but some of those things simply are not going to be taken into account because it has already been decided how things are going to be done, and they have started to be done that way.”

A final point of contention may indeed be within HKND itself. This Hong Kong-based company is a telecommunications giant notorious for its obscure financial record. The Washington Post reports that the negotiations that supposedly led to HKND winning a government contract for the project had virtually no public transparency. Many speculate that the deal was by and large a private exchange headed by Ortega and his political allies. Others point out that the 50-year agreement (with provisions for a possible 50-year extension) is far too vague in its terms and gives HKND an unprecedented amount of free reign, a point that has been taken up by many protesters in Nicaragua. A closer review of its finances has also shown that HKND has seriously underestimated the cost its own venture. An estimated $50 billion dollars has been set aside for the project, although stalled progress due to protests and underestimated mechanical challenges are likely to stretch the bill. This has led many to speculate that Wang Jing, the billionaire who owns HKND and who is investing heavily in the project, will eventually run into problems financing the canal halfway through construction.

There is little reason to be optimistic about the development of the Nicaragua Canal. If it somehow does reach completion, it is anticipated to be China’s largest and most significant footprint in Latin America, but this would only come about at a greater cost to Nicaraguan society and its environment. The disastrous prospects of this canal cannot help but seem like a historical reformulation of wealthy businessmen looking at big colonial ventures with dreamy eyes. Still, Wang’s proposal has managed stay afloat on the pretense that it will compete with the Panama Canal by diverting most of its traffic and provide a major boost in employment to Nicaragua. Yet theoretically, an expansion of the Panama Canal would practically make it no different than the one proposed in Nicaragua. How much would such a renovation cost? No more than $5.5 billion dollars. Even in purely business terms, it is enough to be this entire project’s death knell.

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