What are the implications of a Nicaraguan canal?

2013-07-02 00:00

ON June 11, the Nicaraguan parliament voted in favour of building a $40-billion canal across the country, connecting the Atlantic and Pacific oceans.

Since the country is dirt poor, the money would have to come from international investors, which would be raised by a Hong Kong-based firm, HKDN Group, which, in return, would get the right to build and run the canal for 50 years. But nobody outside Nicaragua took the plan very seriously.

On June 15, Nicaragua’s president, Daniel Ortega, and Wang Jing, the owner of HKDN, signed a contract that gives the Central American nation 51% of the company’s shares.

Wang said the capital could easily be raised from Chinese companies and international banks, but since his only business experience has been in running telecommunications firm Xinwei Telecom, again nobody took much notice.

So, on June 25, Wang went public. Speaking in Beijing, he said that he had already attracted global investors. Work on the canal would start in 2014, and it would be open by 2020.

“We don’t want it to become an international joke, and we don’t want it to turn into an example of Chinese investment failures,” he said, adding that returns on the project are “sure to make every investor smile broadly”.

Promoters always talk like that, and there would still not be much reason to take Wang and Ortega seriously if it were not for one fact: Chinese businesspeople do not launch projects of this scale without the support of the Chinese government. The risk of embarrassment is just too high.

Wang denies that he has official support, of course: “I am a very normal Chinese citizen. I couldn’t be more normal.”

But if Beijing really is behind the project, then it may actually happen. So what would be the implications of a 286-kilometre waterway connecting the Caribbean with the Pacific, via Lake Nicaragua?

For Nicaragua, they would be huge. The Nicaraguan government claims that work on the Great Interoceanic Canal and associated projects — a “dry canal” freight railway, an airport and two duty-free zones — could double Nicaragua’s GDP and triple employment by 2018.

In a country that still does not have a proper highway connecting its two coasts, that would change everything.

For Panama, whose existing canal has been the mainstay of the country’s economy for a century, the competition would be very serious. A $5-billion project to double the Panama Canal’s capacity by building a third chain of locks across the isthmus is nearing completion, but it will still be restricted to taking ships of 65 000 tons or less.

The rival canal in Nicaragua would be able to accommodate the new generation of ships ranging up to 250 000 tons, but there will not be enough shipping to keep both canals in business, unless world trade continues to expand rapidly.

In any case, competition in transit rates would be fierce, and it might well come to pass that neither canal is very profitable.

Then there is the environmental question.

The new route would cross Lake Nicaragua, the region’s largest fresh-water lake, bringing with it not only pollution, but the risk of introducing salt-water species that could disrupt the lake’s ecology. But if it is forced to choose between economic growth and environmental purity, there is no doubt that Nicaragua’s government would choose growth.

The biggest question, however, is strategic. The United States built the Panama Canal and ran it for many years. Two-thirds of the cargo that goes through the canal comes from or is going to U.S. ports, and American warships still have the right to jump the queue of ships waiting to go through.

As a country with coasts on both the Atlantic and the Pacific, the U.S. sees control of the fastest way between the two oceans as a high strategic priority.

Despite the handover of the existing canal to the Panamanian government in 1999, at the moment the U.S. still has that control. It would have far less control over a Nicaraguan canal, and will doubtless do its best to derail the project.

That’s an inevitable strategic reflex, but it is not necessarily the case that a Nicaraguan canal would really lessen the U.S. Navy’s strategic dominance in the region.

Nothing is more vulnerable than a canal in wartime, and even in confrontations where force is not yet being used, canals are easily blockaded.

And although the Chinese navy no doubt backs enthusiastically the Nicaraguan project, it’s hard to see what real strategic advantage it would gain.

The new canal is certainly feasible from an engineering point of view. It may be viable economically, depending on cost factors that have not yet been calculated and on the rate of expansion of world trade.

But its fate will probably be decided by the Chinese government’s willingness to back what is, for China, a vanity project.

And that, in turn, will depend on whether China’s economy remains strong enough to afford such an indulgence.

At the moment, I wouldn’t bet on it.

• Gwynne Dyer is an independent journalist whose articles are published in 45 countries.

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