Nicaragua’s Canal Dream

Courtesy of The Wall Street Journal, a report on Nicaragua’s plans to build an interoceanic canal:

Nicaragua’s legislators gave their poverty-stricken country one more chance at a dream that has eluded it for nearly 200 years, granting a Hong Kong company the right to build a $40 billion interoceanic canal.

Supporters of the 50-year concession, approved Thursday, hope that it will propel Nicaragua out of its misery by boosting employment and economic growth. But there is also ample suspicion that the project will flounder, as so many others have done since the first government contract for a canal through Nicaragua was awarded in 1825.


A worker prepares a flag to hang on the wharf off the shores of Cocibolca Lake, also known as Nicaragua Lake, in Granada, Nicaragua, last week.

“The whole history of Nicaragua revolves around this,” said Paul Oquist, President Daniel Ortega’s private secretary for national policy. “We see the project taking the country out of poverty and underdevelopment.”

The project envisions building a canal as long as 286 kilometers (178 miles), depending on which of four possible routes is used, as well as two deep-water ports, two free-trade zones, an oil pipeline, a railroad and an international airport.

Critics said the project is a chimera. “They have sold this as a panacea to the country’s ills,” said Eliseo Nuñez, an opposition deputy who opposed the concession. “Ortega needs to sell hope.”

Some experts say there is no need for another canal in Central America and doubt it will ever be built. A Nicaraguan canal would face competition from the Panama Canal—now undergoing a $5 billion expansion that will soon enable it to service larger ships—and transcontinental road and rail transport in the U.S.

The law granting the concession to HK Nicaragua Canal Development Investment Co., known as HKND Group, whose sole owner is Wang Jing, a 40-year-old Beijing-based entrepreneur, was introduced last week to Nicaragua’s congress, which is controlled by Mr. Ortega’s ruling Sandinista party.


Mr. Wang told The Wall Street Journal the project was a response to “the 100-year-old dream of the Nicaraguan people.” He said he was convinced the world needed a wider and deeper interoceanic canal than Panama’s.

In 1902, Nicaragua missed out when the proponent for the rival Panama project sent U.S. senators a stamp showing Nicaragua’s Momotombo volcano spouting smoke. Spooked senators cast their vote for Panama.

Nicaraguan government officials today see the canal project as the country’s ticket out of grinding poverty.

Though work on some of the pre-feasibility studies has barely started and isn’t scheduled to be finished until next year, Mr. Oquist is already projecting that Nicaragua will more than double its economic growth to 10.8% next year from a projected 4.2% this year. He expects growth to shoot up to 15.1% by 2015.

According to the contract, Mr. Wang will pay Nicaragua up to $10 million a year as a fee for the 50-year concession, which is renewable. On the 11th year of operation, Nicaragua will own 10% of the company, a figure that would rise to 100% in a century. Mr. Wang will pay for the feasibility studies and is responsible for arranging funding for the project.

Nicaraguan canal proponents base their case partly on a McKinsey & Co. study that concluded that a movement to ever-larger ships and growth in world-wide trade would make a Nicaragua canal economically viable, according to people close to the project. McKinsey wouldn’t confirm any study, citing its confidentiality policies.

Not everyone agrees that the numbers add up. “I can’t see how this canal could be financially or economically justified,” said Jean-Paul Rodrigue, a transportation expert at Hofstra University. “It could be the biggest white elephant in human history.”

The HKND’s Mr. Wang is chairman of Beijing-based Xinwei Telecom Enterprise Group, a closely held company that makes wireless networking equipment. In a December speech to new employees, Mr. Wang said Xinwei was on its way to posting a $326 million profit for 2012.

Mr. Wang registered his canal company in Hong Kong in August. A month later, on Sept. 5, he met President Ortega in Nicaragua. That day, Mr. Wang and the Nicaraguan government signed a memorandum of understanding—which wasn’t announced at the time—authorizing Mr. Wang to promote the financing and participate in the construction of a canal.

He and Mr. Ortega also discussed a telecommunications proposal, and Xinwei was awarded a $300 million telecommunications contract in Nicaragua, according to the company.

In Nicaragua, the general feeling is that the bulk of the money for the canal will come from China, which is popularly seen in Latin America as capable of spending enough to complete any project. “The liquidity is in China,” said Mr. Oquist.

Xinwei’s website features photographs highlighting Mr. Wang’s political connections in China, a country where business and politics are often intertwined, but HKND Group said it is a private company with no affiliation to the Chinese government or to Xinwei, and didn’t expect any Chinese government participation in the Nicaragua project. HKND said it expects to seek financing from “a broad range of international sources.”

The weight of history against a canal being built in Nicaragua is enormous. In 1825, the government of the Republic of Central America signed a deal with a New York businessman to dig a canal across Nicaragua. Since then, at least a dozen plans have gone nowhere.

“It’s been like looking for a nonexistent El Dorado,” said Arturo Cruz, a former Nicaraguan ambassador to Washington. “It’s done us a lot of psychological harm as a country.” Mr. Cruz said, however, that he is less skeptical than usual about the current project.

Mr. Wang’s company dismissed doubts about the project, and said that it had hired consulting company Environmental Resources Management and experienced advisers to develop feasibility studies.

“We are committed to ensure the proper design, construction and operation of the Nicaragua grand canal,” Mr. Wang said.

This entry was posted on Saturday, June 15th, 2013 at 4:09 pm and is filed under Nicaragua.  You can follow any responses to this entry through the RSS 2.0 feed.  Both comments and pings are currently closed. 

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