Nicaragua's Grand Canal. Is it Actually Necessary?

In 1846, while imprisoned at the Château de Ham for his failed 1840 coup attempt, Louis-Napoléon Bonaparte penned The Canal of Nicaragua, or A Project ' for the Junction of the Atlantic and Pacific Oceans by Means of a Canal. This little known, but ultimately important pamphlet laid out a detailed plan to “diminish by three thousand miles the distance that separates Europe from the whole of the western coast of America and Oceania it will render the communication with China Japan New Zealand and New Holland speedy and easy by means of steam boats”.

Napoléon’s III was not the first to dream of a maritime route across Central America connecting the Atlantic and Pacific oceans, nor would he be the last. His vision would of course be realized in 1914 by United States with the completion of the Panama Canal, where for over a century it has reigned as one of man’s greatest engineering achievements and most import maritime arteries.

For Panama the canal has served as the lifeblood of the nation’s economy. For the United States an unrivaled chip in the US geopolitical arsenal. That is until July, 2014 when HK Nicaragua Canal Development Investment Co. Ltd, or HKND Group, announced that it had won a 50 year concession to build a canal connecting the Atlantic and Pacific Oceans, across Nicaragua.

The project, valued at a generous $50bn, would follow roughly the same route which Napoleon envisioned 169 years before. Starting at Brito on the Pacific and ending in Punta Gorda in the Caribbean, the canal will travel 278km across Nicaragua. Lawmakers estimate that the canal will boost Nicaragua’s GDP by 12% and create tens of thousands of jobs, a huge boon for a country with a per capita GDP of $4,500.

Despite this there are serious questions about whether the canal is actually necessary.

First there is the question about whether it can actually be done. The proposed canal would be more than 3 times longer than the route which the Panama Canal (77km) uses To build the canal, 175bn cubic feet of earth will need to excavated, that is roughly equivalent to piling dirty 92 fit high across the entire District of Columbia. Then there is the 20ft tide differential between the two coasts.  

Opponents and indigenous groups worry about the environmental impact. The canal’s width will vary between 230 and 520 meters along its 278km route with a protection border of 5km along either side. The route will carve through pristine rainforest, indigenous communities, farmland, and Lake Nicaragua, the largest fresh water lake in Central American and Nicaragua’s main source of drinking water.

There is the question of who is going to fund the canal’s construction. When the project was announced the cost was estimated at $40bn. One year on the figure has already jumped 20% to $50bn, and construction has only just begun. The canal’s figurehead is a man by the name of Wang Jing, an eccentric Chinese billionaire who made his money as the head of Beijing Xinwei Telecom Technology.  Ranked #12 on Forbes list of richest Chinese with a network of roughly $6.4bn, Mr. Wang’s net worth jumped by $5bn in September when he sold 37% of his stake in Beijing Xinwei Telecom through a back door listing. Despite all this Mr. Wang has only identified $200mn worth of funding for the canal.

Then there is the question of support. Polls show that despite the concerns over feasibility, funding and the environmental impact, the majority of Nicaraguan’s support the canal. There is opposition from farmers and business interest within Nicaragua who see the canal as a threat to their livelihood. 

At the end of the day it is a question of what is best for Nicaragua. Across the board the risks are high, but so are the rewards.  

A fully functioning canal would account for an estimated 4-5% of global maritime traffic; bring billions into the economy annually, create thousands of permanent jobs, and opportunities for free trade zones, manufacturing, etc.

Can the impact on Lake Nicaragua and farmland be mitigated? Does the concession adequately compensate Nicaragua’s current generation ($10 million a year — for the first decade of operation, then increasing percentages of the profits in subsequent years)? How does the current Panama Canal expansion project and future expansion plans impact the demand for a Nicaraguan canal?

The real question should probably center on Mr. Wang and HKND Group. Does Nicaragua want to trust his company with such an important project?

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