Global Glance: January 9, 2017
A quick look at intriguing international stories
By John Bostwick, Managing Editor, Radius
Nicaragua’s Bold Plans for a New Atlantic-Pacific Canal Include a Chinese Company
According to World Bank numbers, Nicaragua has one of the lowest GDPs in the world and is the second poorest country in the Western Hemisphere after Haiti. Yet the impoverished Central American nation of six million may soon become a source of conflict between the world’s two top economic powers.
In June 2013, The Financial Times reported that Nicaraguan lawmakers approved President Daniel Ortega’s proposal “for a little-known Chinese company to dig an interoceanic rival to the Panama Canal.” The canal would link the Pacific and Atlantic oceans and give Nicaragua’s economy a desperately-needed boost. The article indicated some critics are worried that the canal could have serious negative consequences for the environment and that it may not be economically viable in the long term.
Years later, those and other concerns persist, and critics are still battling to delay the construction of the planned canal. First, though, a little more background.
A 2014 Wired article explains that “kings and entrepreneurs” have looked to build a canal across Nicaragua as far back as the 16th century. In 1902, the US Senate nearly voted to build a canal in Nicaragua but decided on Panama instead, in part because of concerns over volcanoes and related seismic activity in Nicaragua. (These were not idle fears, according to some current experts.)
Today, President Ortega and his government are eager to build the waterway because, Wired says, they “claim the canal will double the national economy, triple employment, and lift more than 400,000 people out of poverty by 2018.” The project is monumentally ambitious — the channel would be more than three times the length of the Panama Canal and nearly twice as deep — and too costly for one of the poorest nations in the region to undertake on its own.
The Chinese company involved is the Hong Kong Nicaragua Development Group, or HKND, headed by billionaire Wang Jing. Under the agreement, Wired indicates that HKND “would raise the $40 billion needed to build the canal and would have the right to operate and manage it for up to 100 years before turning it over to Nicaragua.” (That estimated cost has since risen to $50 billion, and according to some sources the number should be much higher.) The Wired article and others have noted that the deal lacks transparency. It’s unclear, for instance, if any other companies besides HKND were allowed to bid on the project and, more crucially, if the Chinese government is involved.
A New York Times article from last April indicates that the project— which “would be the largest movement of earth in the planet’s history” — has continued to “baffle” experts, who wonder if it’s “backed by the Chinese government, part of its growing interest in Latin America, or … a private investment.”
While there was an official groundbreaking ceremony in December 2014, the New York Times indicates that no real construction progress has been made and that “some experts say the deal is probably dead.” It seems that Wang, who HKND says has already spent half a billion dollars of his own money on the canal project, may have lost 84 percent of his $10.2 billion fortune in the markets in 2015.
HKND’s executive vice president Pang Kwok Wai assured The South China Morning Post in the wake of the New York Times article that the project was alive and well, and that its “financing does not depend on the state of the stock market in China or on Wang Jing’s own financial position … [it] will be funded from the huge pool of international funding that is dedicated to this sort of infrastructure project.” Pang did not specify who besides Wang is providing that funding, but he expressed confidence that the canal “can be put into revenue … within five years.”
A number of civil rights and environmentalist groups are working to halt the canal’s progress. As for the environmental effects, a Smithsonian article estimates that the “new canal and its infrastructure, from roads to pipelines to power plants, will destroy or alter nearly one million acres of rainforest and wetlands.” This doesn’t account for the damage that could be done to Lake Nicaragua (also called Great Lake Cocibolca), the country’s enormous inland reservoir, which would be part of the canal route. In order to accommodate the massive ships involved, construction would include dredging a trench in the lake down to 90 feet (from an average of 50, according to Wired), which would seriously pollute the lake, as would the shipping traffic.
The Smithsonian article also points out that, unlike Panama, Nicaragua is “in the middle of a hurricane belt.” An expert quoted by the magazine estimates that a hurricane like the one that slammed Nicaragua in 1998 “would probably cause the canal to flood, triggering mudslides that would breach locks and dams. Communities, homes, roads and power lines would be swamped.”
Last October, the International Federation for Human Rights released a report calling on the Nicaraguan government to “revoke the interoceanic canal concession and other mega-projects granted to companies belonging to the Chinese investor Wang Jing.” The report finds among other things that the canal project is effectively a massive, unconstitutional “land grab” by HKND that doesn’t fairly compensate displaced Nicaraguan residents or the Nicaraguan State. Moreover, the report maintains that the canal will expose Lake Nicaragua “to the risks of oil pollution, salinization, sedimentation, turbidity and invasion by alien species, with truly catastrophic consequences according to the scientific community.”
According to an Associated Press report published a month later, the proposed canal sparked an organized protest in Managua, the nation’s capital. While the government didn’t comment, protestors told the AP in the run-up to the demonstration that police “set up roadblocks and [were] harassing demonstrators.” It was the fifth mass protest since the government granted the concession to HKND in 2014. The AP ends the short piece by noting that HKND still “has barely broken ground” on the canal.
Amid the environment- and civil rights-related protests, many experts have also questioned the projected economic benefits of the canal. The April New York Times article explains that a Nicaraguan canal would offer few if any benefits over the Panama Canal (recently expanded), and would likely lead to “price wars” between the operators of the two waterways.
An article in Fortune explains that the 172-mile Nicaragua canal would also “require that ships either lay up at night, or navigate in the dark,” no great incentives to shippers. It adds that the Panama Canal Authority has also estimated that the actual cost of the Nicaragua canal “will likely reach $100 billion [not the projected $50 billion], and fees would have to be more than double Panama’s.” (Fortune rightly notes that this source is “hardly disinterested.”)
A US academic quoted by Fortune essentially says that concentrating on the economic viability of the canal is missing the point; it “and similar Chinese projects in the developing world are driven not by practical calculus, but by ‘a desire for influence, power and money.’” As the South China Morning Post article points out, the canal “could give China a major foothold in Central America, which has long been dominated by the United States.”
It’s worth remembering that the US ceremonially turned over control of the Panama Canal to Panama as recently as 1999. According to a Washington Post article at the time, this transition “remains wildly unpopular among American conservatives.” It’s safe to say that President-elect Trump will not be pleased if China does indeed gain a foothold in Central America through the Nicaragua canal, though it’s unclear how he can go about stopping it. Then again, given the scope of the project, the slight headway made so far and the ongoing efforts of civil rights and environmental activists, he may not have to try.