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In the nineteenth century Western policymakers became enamored with the idea of establishing a canal across Central America. While extempers are aware of today’s Panama Canal, which was constructed by United States between 1904 and 1914, Nicaragua was actually the first choice for a Central American canal project that would link the Caribbean and the Pacific Ocean, thereby reducing shipping times and costs. When the United States chose to build a canal through Panama it abandoned the idea of a Nicaraguan canal entirely, but the project has been revived by the Nicaraguan government and Chinese telecommunications tycoon Wang Jing. Two years ago, the Nicaraguan National Assembly granted a canal concession to Mr. Wang’s Hong Kong Canal Development Group (HKND), who will operate the canal for one hundred years, with the Nicaraguan government achieving a majority stake in the canal after fifty years. The project will cost an estimated $50 billion and is supposed to be completed within the next five years. However, opposition is growing from indigenous communities, environmental activists, and Nicaraguan President Daniel Ortega’s political opponents. There are also questions about whether the canal project is feasible and some engineers wonder whether the Grand Canal will eventually become a “grand mistake.”
This topic brief will provide some background on the existing Grand Canal project, highlight the Nicaraguan government’s case for why the canal needs to be built, and then discuss criticisms of the project.
Readers are also encouraged to use the links below and in the related R&D to bolster their files about this topic.
The Grand Canal Project
By the nineteenth century the difficulty and time of shipping goods around the southern coast of South America prompted the United States and European countries to consider the feasibility of constructing a canal across Central America. This would allow ships to go through smoother waters and increase the speed of traffic for vessels journeying between the Pacific and Atlantic oceans. Nicaragua was seen as an ideal location at first because of the topography of its land, but aims to establish a canal there never got off the ground due to concerns about political instability, the cost of creating a canal, and fears of how volcanoes might affect a canal system. In light of these concerns, the United States chose Panama as the site for a Central American canal and in November 1903 it provided assistance to a Panamanian revolt against Colombia, which controlled the territory, and then reached an agreement to complete a canal there (building upon failed French ventures to construct it between 1881-1894). On August 25, 1914, the Panama Canal was opened for traffic, quickly becoming popular with shippers who sought to avoid rounding the coasts of Argentina and Chile.
Nicaraguan authorities have typically viewed the failure to construct a canal across their territory as a missed opportunity. The Costa Rica Times of February 25 writes that today Panama enjoys an economic growth rate of 8.4%, which reflects where Nicaragua might be today if a canal had been built in the nineteenth or twentieth centuries. In recent years, Nicaraguan authorities have aggressively pursued the idea of constructing a canal, arguing that they can construct a canal that would be frequented by larger cargo ships that cannot use the Panama Canal. In July 2012, the Nicaraguan government established the Interoceanic Canal Authority to look into the idea of constructing a canal and Forbes writes on March 6 that a month later the Hong Kong Canal Development Group (HKND) was formed. By September 2012 the HKND reached a memorandum of understanding with the Nicaraguan government and less than a year later in June 2013 the Nicaraguan National Assembly granted a canal concession to the HKND to complete the project.
The HKND is headed by Chinese billionaire Wang Jing. Mr. Wang is the CEO of Beijing Xinwei, a telecommunications firm, and the BBC writes on March 18 that between 2010 and 2014 he transformed the company from a loss maker into one of the best performing companies on the Chinese stock market. His global net worth is pegged at $6.6 billion, according to Forbes, which makes him one of the country’s wealthiest men. The Washington Post reveals on February 4 that Mr. Wang’s fortune might be tied more to good luck than business acumen as he has a background in traditional Chinese medicine and worked for a time as a school principal. His fortune was made when Xinwei, which used to be a state-owned asset, was privatized in 2009. Critics wonder if Mr. Wang is a puppet of the Chinese government, which might see a canal project as a way to exert more influence in Latin America, but the BBC says that Mr. Wang insists that he is merely a private citizen. Still, it reports that Xinwei’s Beijing headquarters has hosted senior government and Communist Party officials in recent years, which might mean that Mr. Wang has tried to convince the Chinese government to assist in the financing of the Nicaraguan canal project.
Existing plans call for a canal that is longer, deeper, and wider than the Panama Canal and the Suez Canal in Egypt. The Guardian reports on January 20 that the Nicaraguan project will be twenty-eight meters deep, eighty-three meters wide, and 178 miles long. By comparison, the Panama Canal is sixteen meters deep, fifty-five meters wide, and forty-eight miles long. The Suez Canal is twenty-four meters deep, sixty-four meters wide, and 121 miles long. Unlike the Panama and Suez projects, though, which took ten years to complete, the HKND argues that it can finish the Nicaraguan Canal in five years. The planned route will go from Rio Punta Gorda on the Caribbean coast to Brito on the Pacific, with the canal also going across Lake Nicaragua, Central America’s largest lake and freshwater reservoir. Lake Nicaragua is also Nicaraguans primary drinking water source. The route will also cut very close to rainforests, which are the primary habitat for some of the region’s endangered species.
The project will be very labor intensive, with the HKND estimating that it will employ 50,000 workers. Much of this labor will come from the excavation of dirt since a canal is an artificially constructed waterway. Also, the bed of Lake Nicaragua, which is only fifty feet deep, will have be dredged so it can accommodate the ninety-foot-depth needed for ships passing through the canal. Vox reports on February 26 that the project will require the excavation of 175 billion cubic feet of dirt, which is enough to bury the city of Manhattan twenty-one stories deep. The Washington Post adds that the excavated material could also bury the entire city of Washington, D.C. with ninety-two feet of dirt. Further complicating the endeavor, Nicaragua has a vicious rainy season, which led one engineer to tell Vox that the Suez Canal project “was chicken feed” compared to what the HKND is attempting in Nicaragua.
The HKND has yet to begin work on the actual canal, as it is waiting for the results of an environmental assessment by the consulting firm ERM, which is due next month. It has sent engineers to survey local communities along the proposed route since its canal concession also grants it the right to expropriate land for the canal and accompanying facilities such as roads, airports, ports, and railways. Those overseeing the development of the project speculate that ground will probably be broken in September 2015 so long as the environmental assessment does not create problems for the HKND or Nicaraguan authorities.
Supporters of the Canal
Nicaraguan President Daniel Ortega, a former leftist guerilla leader that was a former enemy of the United States during the Cold War, is a supporter of the canal, arguing that it is necessary to help raise the standard of living for his country. Nicaragua is the second-poorest country in the Western Hemisphere (Haiti is first) and The Christian Science Monitor reports on March 24 that 75% of its population lives on less than $4 a day. Ortega argues that the canal will provide a much-needed boost to the Nicaraguan economy as the HKND promises to deliver tens of thousands of jobs as well as provide substantial investment for the project. The Christian Science Monitor explains that Ortega is hoping the canal project will provide a 10-12% increase to the country’s gross domestic product (GDP), with this largely coming from foreign investment. The German newspaper Deutsche Welle argues on February 26 that when one considers that Nicaragua’s GDP (GDP measures the value of goods and services produced by a country) is $11 billion, the $50 billion canal could be a significant stimulus for the country.
The canal’s construction can also assist the Ortega government in building up Nicaragua’s awful infrastructure. The country still lacks sufficient, reliable roads that are wide enough to accommodate significant traffic and the concession to the HKND promises to bring these facilities. The Washington Post explains that the canal, at a minimum, will require two new ports for both ends of the canal, lighthouses, locks for the canal, workers camps, tourist resorts, and ferry terminals. In addition, an airport, power plants, wider roads, and bridges will have to be built to move workers and equipment, as well as power the construction of the canal project. With Nicaragua acquiring operation over the canal within one hundred years, it could receive a significant infrastructure upgrade for very little investment of its own. This is the technique used by American states during the antebellum period when private businesses constructed roads, bridges, and other infrastructure in return for the right to run them for a period of years to recoup the cost.
Although there are environmental concerns about the canal (which are detailed in the next section), Nicaraguan authorities argue that the canal will carry more environmental benefits in the long-term. They argue that since the canal will be completed in over five years that any wildlife driven off by the project will soon return as the Panama Canal has not significantly damaged its surrounding ecosystem. They also add, according to The Washington Post, that poverty is already causing significant environmental problems such as deforestation that are putting endangered species at risk. If poor Nicaraguans can be put to work on the canal, authorities hope that they will not turn to illegal deforesting activities. Furthermore, if the canal can bring substantial economic benefits, such as increasing foreign traffic and investment into the country and thereby raise the country’s standard of living, then environmentally harmful behaviors engaged in by the country’s poor can be eradicated.
Finally, the project has not become politically toxic for Ortega. Polls show that a majority of the country supports it, but there are some troubling signs that support may not hold. The Deutsche Welle article previously cited explains that a December poll showed that 42% of those who live along the proposed canal route oppose the plan. These numbers could rise as more construction begins and people get displaced from their land. Also, growing activism by environmentalists and opposition politicians, as well as indigenous groups, could weaken political support for the project. For now, though, Ortega’s plan for the canal and his push for the HKND concession has won over enough voters to ensure that he is not paying a political price for his efforts.
Critics of the Canal
Most of the media reports concerning the canal proposal have been very critical. It is for this reason that I would highly advise extempers to adopt a negative position if they have to speak about the feasibility of the canal project. It is always a good idea to go where your evidence is taking you when preparing a speech and this issue is no exception.
One of the largest warnings about the canal project is its environmental cost. Critics of the government argue that the National Assembly only debated the concession to the HKND for two days in 2013. They also charge that the ongoing environmental assessment is being rushed and will not be able to give an accurate picture of what the canal might do to endangered species and rainforests. Vox explains that twenty-two species will be in danger from the proposed route, which include tapirs, jaguars, and turtles. Also, Scientific American writes on February 11 that climate change could impair the project since the canal will require 7.5 million cubic meters of water per day in the rainy season and 8.44 million during the dry season. However, climate experts say that Nicaragua is going to have to find a way to deal with a 3-4% water deficit by 2039. Furthermore, Nicaraguans living around Lake Nicaragua rely on it for drinking water and for fishing, but the dredging of the lake could churn up toxins that have settled on the lakebed and that could produce hypoxia (a deprivation of oxygen supply) thereby killing aquatic life. Vox writes that there are also fears of how dynamite might be used to clear rocks from the lakebed, which could have a negative impact on aquatic life as well. CNN writes on March 4 that there are other fears that Lake Nicaragua could become polluted from industrial chemicals that could leak from ships or invasive species might be introduced from foreign ships into the area, which could constitute yet another threat to wildlife. Yet another concern, according to The Guardian, is that the fences that are supposed to line the canal will inhibit the Central American biological corridor, which has been supported by Mexico, seven Central American countries, and the World Bank. The goal of this corridor is to leave a migration path for the region’s wildlife. HKND argues that it will provide two eco-bridges over the canal, but critics say that is not enough and that the canal will constitute a threat to normal migration patterns. The Indian Country Today Media Network adds on March 25 that dams will have to be built as part of the canal project, which could be dangerous because those dams will be placed in areas of seismic activity, thereby causing simultaneous fears of water shortages (due to the dams holding back traditional waterways) and flooding (if the dams were to break after an earthquake). Lastly, the Indian Country Today Media Network notes that forty million acres of rainforests and wetlands are at risk due to the project.
Beyond environmental concerns are demands by indigenous peoples for their land rights. A significant amount of the canal project is cutting through traditional lands held by the country’s indigenous peoples, who are critical of governmental efforts to displace them. CNN explains that 30,000 people may have to be removed during the course of the canal project and, as already noted in this brief, the HKND has the power to seize property (in return for giving some form of compensation) for the canal and its necessary infrastructure. The Indian Country Today Media Network writes that indigenous communities were not adequately consulted as part of the process and that their legal challenge to the government was rebuffed by the Nicaraguan Supreme Court in December 2013. However, indigenous peoples have appealed to the Inter-American Commission of Human Rights (IACHR), which agreed to take their case in November 2014. If successful, this could complicate the canal project by giving legal sanction to the protection of indigenous communities along its proposed route, with Nicaragua facing significant sanctions if it did not comply with a favorable IACHR ruling.
Like indigenous peoples, poorer Nicaraguans, the so-called campesinos (peasant farmers), which have supported leftist leaders such as Ortega in the past, are growing more critical of the project. The Washington Post article previously cited in this brief explains that opponents of the canal now include former allies of Ortega and they say he has sold out poorer Nicaraguans to Chinese interests. Opponents allege, according to Deutsche Welle, that the Chinese will not employ enough Nicaraguans for the project, noting that Chinese companies have typically imported other Chinese workers in the past when they have built infrastructure or done business in African nations. They also warn that China will establish military bases in the country to protect the canal once it is completed. Ortega’s supporters counter that the Chinese government is not funding the canal, that it will not establish military bases in Nicaragua because it does not want to antagonize the United States, and that even though some skilled Chinese will be brought in to work on the canal that low-wage Chinese workers are not going to migrate to a country with a lower standard of living. The Ortega government could alleviate these concerns if they were more transparent about the canal project. Unfortunately, that is not what is taking place. The Committee to Protect Journalists writes on March 24 that it has been nearly 3,000 days since Ortega last held a news conference and his wife, Rosario Murillo, who is the government’s communications czar, has been the chief architect behind shutting down independent media outlets over the last several years. The Christian Science Monitor adds that since being elected in 2006 and re-elected to a third term in 2011 that Ortega has also threatened state employees if they are not loyal to his government – for example, teachers have been told to tell their students that the canal will help the country’s economy and will not harm the environment – and that civil society groups are being intimidated by the government. By not properly engaging in a dialogue with the Nicaraguan people Ortega risks a violent revolt. These risks are real because Nicaragua endured a bloody civil war during the 1970s and 1980s when the United States sought to topple Ortega’s leftist regime. This time, the violence could be directed toward Chinese firms and there is a growing xenophobia in the country toward Chinese peoples. The Guardian explains that Ortega’s government fears what might happen if armed Nicaraguan troops clashed with protesters to protect the property interests of a Chinese corporation.
From a business perspective, there are also critics that say the canal will never be completed and that even if it is that it will not be profitable. Vox notes that the time frame for the project is too optimistic as the rainy season in Nicaragua could complicate excavation efforts and that the HKND will need 2,000 pieces of major construction equipment, four billion liters of diesel fuel, one billion liters of bunker fuel for dredging vessels, 400,000 tons of explosives, and millions of tons of cement and steel. All of this will have to be imported and infrastructure will have to be built to get all of this to various sites in the construction process. In addition, the HKND has no previous canal-building experience. After all, Mr. Wang’s fortune came from telecommunications. There are also reports that Mr. Wang is finding it difficult to get outside funding for the project and some in the shipping and engineering industry, such as IHS, an information and analysis company, argue on March 18 that private investors are not going to participate because the expected rate of return of 2.6% is lower than inflation. Also, IHS says that Nicaragua’s projections of the financial benefits of the canal are unrealistic since it expects to charge $1 million per ship to use the canal, but the Panama Canal has never charged more than $330,000 a vessel. JOC, a global intelligence firm for trade, transportation, and logistics, writes on March 3 that the real cost of the canal is not $50 billion, but $70 billion and the only way that funding will be obtained is if another country steps in to help. Therefore, experts say that if the Chinese government does not step in and help the HKND then the Nicaraguan canal may never be completed.
It should also be noted that the entire design of the Nicaraguan canal is based on the assumption that larger cargo container ships that can carry more than 23,000 containers, will use the canal since they cannot use the Panama Canal. However, experts doubt whether there is going to be enough of the super container vessels to make the Nicaraguan Canal profitable. Vox explains that the U.S. does not have ports deep enough for these super container vessels at the present time and that global shipping traffic has been quite sluggish. Also, there is the danger of other routes opening up or people still opting to use the Panama Canal. Not only might global warming free up a shipping route through the Arctic, thereby establishing the Northwest Passage that explorers of the sixteenth and seventeenth centuries searched for, but the Panama Canal might launch expansion plans to keep business out of Nicaragua. The Christian Science Monitor explains on March 10 that the Panama Canal Authority is nearing the end of a $5.25 billion expansion project that will allow ships to carry more than double the number of containers they used to (from 5,000 containers to 14,000). This project will be completed in April 2016. Also, Reuters writes on March 26 that Panama’s canal officials are looking into a $17 billion project to build a fourth set of locks that could allow ships to carry nearly 20,000 containers. Additionally, the March 10 edition of The Christian Science Monitor argues that 60% of the traffic coming through the Panama Canal goes to or from the United States. Thus, Nicaragua might defy the odds and build their canal, but they may not get as much traffic as they assume because the United States, which has criticized elements of the canal’s construction, may not send vessels through there and the Panama Canal may make significant improvements that may make it a more attractive destination than Nicaragua.
The worst case scenario would see the HKND made some headway on the Grand Canal and then abandon the project due to lack of funding. This would leave noticeable scars and environmental damage to the Nicaraguan landscape, yet give the nation very little in return. If this happened, the Ortega government would also be at peril. Therefore, extempers should continue following the development of the canal as questions will linger for the coming seasons about its feasibility, its potential to change global shipping routes, and its affect on Nicaraguan politics.