Updated 1 year, 2 months ago

The Nicaragua Canal Conundrum

Earlier last year one of the most iconic civil engineering projects in modern history, the Panama Canal, celebrated its centennial. Observers have lauded the US-built megastructure’s role, now officially under the auspices of the Panamanian State, in transforming the national economy into the region’s most prosperous.

Where Panama once led Nicaragua now follows with controversial President and ex-Sandinista, Daniel Ortega, announcing plans last July for what has been dubbed “the greatest engineering project in human history”–Nicaragua’s very own Grand Canal.

Nicaragua has flirted with this idea before developing something of a canal complex over the years. Unsurprisingly then, today’s transoceanic canal will closely follow a route charted in 1876-77 by a U.S. Navy engineer. However, unlike its Panamanian counterpart, capital will not come from the region’s traditional seat of power but from a Chinese billionaire, Wang Jing, and his Hong Kong consortium’s Nicaragua Canal Development Investment Company (HKND).

Construction began on December 22 in a largely symbolic fashion with the ground-breaking of an access road expected to service the first port on the Pacific coast. Concessions for the mega-project are set for an initial 50-year period, extendable again by the same amount. An opening investment of US$50 billion (almost five times the country’s annual GDP) is expected, providing for the 172-mile shipping channel, including a series of related infrastructure projects and free trade zones, linking the Atlantic and Pacific.

The project has caused a stir internationally with sceptics forming a loose coalition of anti-canal sentiment. On the one hand motivation behind the project is patent when considering the World Trade Organisation’s (WTO) evaluation of global trade in 2013 was set at some US$18.8 trillion, of which maritime trade volume accounted for around 80 percent.

However, despite recent economic slowdown, the future for the international shipping industry looks healthy even by the most conservative estimates. This lucrative sector fueled by growing populations, emerging markets and the cost-saving benefits shipping offers to producers have provoked positive forecasts from the International Chamber of Shipping (ICS). “The prospects for the industry’s further growth continue to be strong,” according to a 2010 Shipbuilding and Repair Maritime Cluster report.

Clearly then there lies the ambitions with Ortega hoping the canal will be the catalyst, completing a longstanding Sandinista dream, for lifting mainland America’s poorest nation out of penury.

Without the canal the Central American nation’s projected growth has been estimated at about four-and-a-half percent per annum up to 2020; this jumps exponentially, with some experts placing it as high as 15 percent with the transoceanic waterway.

The commercial attractions of the Nicaraguan canal are in its technical features especially its ability to accommodate the largest currently serving, or planned, vessels reaching capacities in the region of 250,000 tonnes (twice that of Panama).

Cargo vessel sizes have increased three fold since the mid-‘90s and many ships known as ‘Post Panamax’ (too big for the Panama Canal) will benefit from this new watercourse, namely, but not exclusively, those transporting raw materials from Latin nations such as Argentina, Brazil and Venezuela to China. A spokesperson for international shipping giant Maersk green-lighted the project, saying: “building a Nicaragua canal seems to make good sense.”

Although both the Government and HKND continue to tow the official line, maintaining their project is not an affront to Panama’s, as Simon Bennett from ICS puts it, ‘quasi-monopoly’ on shipping interests. Predictably, however, diplomatic relations have become fractious. In response to its competitor’s launch in December, the Panama Canal Authority (ACP) announced plans for a reduced toll structure and loyalty scheme.

This consolidates moves made as early as 2006 when then Panamanian President, Martín Torrijos, announced a set of expansions to increase the canal’s capacity which have cost around US$5.3 billion. However, commentators say that even post-expansion larger vessels will still be unable to cross the canal, the number of which is set to grow according to projected trends.

Despite spokesman for the project, Dr Telemaco Talavera, underlining the governments’ commitment to cause minimal environmental impact, the canal project has been met –perhaps not unreasonably-with scepticism from environmental organisations. Chief environmentalist concerns are the lack of transparency, still forthcoming impact reports and fears over long-term damage to Lake Nicaragua.

Even the President of the Nicaragua Canal Authority, Manuel Coronel Kautz, has acknowledged the undeniable and immediate development impact. He goes on to claim that within five years the worst of the environmental impact will have finished and efforts will start to restore the environment and maintain a low ecological impact business similar to the Panama Canal.

According to the Nicaraguan government, the chosen route avoids areas of great biodiversity, indigenous territories and environmentally protected lands which have resulted in substantially greater construction costs. That being said, local opposition has come chiefly from residents facing displacement by the project. Although HKND has announced compensation packages for losses once construction is underway opposition remains belligerent.

The anti-canal movement, interspersed largely by opposition groups to the left-of-centre Sandinista National Liberation Front (FSLN), culminated in a protest of 3,000 people in the nation’s capital, Managua. Reports from protestors and some national media have suggested a ‘heavy handed’ police presence.

Notwithstanding environmental concerns and pockets of localised opposition, it is perhaps unsurprising for a construction project of such magnitude to receive such criticisms and legal challenges; no different to substantial infrastructure projects in other independent nations. It is worth pointing out polls suggest a strong majority favour the canal.

However, the real intrigue is the extent the canal’s presence will be felt beyond simply changes to regional ties, or even the dynamics of global commerce. Some analysts believe it will also affect international geo-politics, possibly bringing two superpowers into direct competition.

With modern China’s advent a strategy of developing regional influence and strengthening of commercial and political ties has been applied globally, not least in an area which has until recent years been labelled in no uncertain terms as ‘America’s backyard’.

John Blank, chief equity strategist at Zacks believes “[the] true value to China is not necessarily shipping… [i]nstead, [the canal] will give China a foothold in the western hemisphere.”

Such suspicions have forced Wang, somewhat of an unknown quantity in international terms, to reaffirm his independence from Beijing however many questions still linger surrounding funding and his capabilities to deliver on such an enormous project (Wang made his name in Telecommunications).

On paper, the project’s benefits seem clear enough (Panama’s success seemingly influential) with encouraging estimates of a doubling of the national GDP and employment tripling by as early as 2018. The potential is there for the impoverished nation bereft of natural resource wealth to transform itself into a global hub of commerce ensuring much needed growth. Ortega’s government has committed the fiscal returns to targeting key areas such as education and health care.

The burning issue remains up for debate; will the positive social impact be offset against damage to both communities and the environment?

In any case, despite national and international critics continuing to voice their concerns over a multitude of aspects, not least feasibility, popular support remains and, for now, the age-old Nicaraguan dream of commanding its own canal is extant.

Latam Thought | by Rohan Chatterjee