Can China finally make the Nicaragua canal dream happen?

Undeterred by a long string of failed megaproject plans, Nicaragua is now hitching its wagon to a new star: China. Or, more precisely, obscure Chinese businessman Wang Jing.

Mr. Wang, a little-known telecom tycoon and presumed billionaire who modestly claims to be “a normal Chinese citizen” who lives with his mother, has promised to finance, build, and privately operate Nicaragua’s $40 billion interoceanic canal megaproject. The plan includes seaports, an airport, free-trade zones, and a trans-isthmian freight railroad. Wang doesn’t appear to have any experience with large-scale infrastructure projects, but his enthusiasm for the Nicaragua canal was enough to convince the Sandinista government that he’s their man for the job – especially given that no one else stepped forward.

In June, the Sandinista-controlled legislature fast-tracked into law a sweetheart concession that gives Wang’s newly formed company, HKND Group, an exclusive 50-100 year contract with sweeping provisions to appropriate land deemed canalworthy. The concession was immediately decried as illegal by opposition groups, who claim it forfeits national sovereignty, and indigenous leaders, who say they were not consulted, even though five of the six proposed canal routes would cut through their protected lands. Environmentalists warn the project could spell ecological disaster for Lake Nicaragua, the region’s largest source of fresh water and arguably the country’s most valuable asset.

While public opinion divides along partisan lines to Sandinista cheers and opposition jeers, a sober look at the proposed megaproject – one that’s been pondered here for nearly 500 years – leaves most analysts scratching their heads. Even a month after the concession was granted, the lack of public information about the canal project has relegated national debate to a visceral exchange of hopes, fears, and wild-eyed speculations.  

Solution to poverty?

The government is pedaling the project as a remedy for underdevelopment in one of the hemisphere’s poorest nations. President Daniel Ortega views the project as a fulfillment of Gen. Augusto Sandino’s century-old dream of building a privately owned Nicaragua canal that is free from US control.

The leftist Sandinista government, whose first go-round in office was marked by a decade of grinding war against US-backed contras in the 1980s, promises the canal project will deliver the country to “the promised land.” Government statisticians claim Phase I of the project will instantly convert Nicaragua into the third-fastest growing economy in the world, reaching a 15 percent growth rate in 2015. Employment will triple, more than 700,000 Nicaraguans will be pulled from poverty or extreme poverty, and the economy will double, reaching $24.8 billion, according to the government. And that’s all before the first boat passes through.

But there are several other mathematical considerations that need to be addressed, observers say. First, where will HKND get $40 billion to dig a canal across Nicaragua?

Chinese ties?

Wang is reportedly footing the bill for the first $400 million for feasibility and environmental-impact studies. He claims there are major financial players who are ready to back the project once those studies are completed, but he won’t say who they are. There is some speculation that Wang has ties to the Chinese government (the state-owned China Railway Construction company is conducting the feasibility studies), but he denies the rumors.

HKND spokesman Ronald MacLean-Abaroa insists the canal project will be entirely private. He says the canal will have no ties to the Chinese government – or any other government, for that matter. “The minute you get governments involved in this kind of project, the private investors fly away,” Mr. MacLean-Abaroa says.

If China is interested in the project, its enthusiasm isn't apparent. The Chinese government, which does not have diplomatic ties with Nicaragua, hasn't made any public statements about the canal. And it has never invested in Nicaragua: Of the $87 billion China has loaned to 14 Latin American and Caribbean countries since 2005, not a single yuan has gone to Nicaragua, according to a financial database compiled by the Inter-American Dialogue. 

Still, analysts believe the Chinese government will have to step in if the project is to succeed.

“It is likely that when it is time to spend the ‘real money’ for the construction phase, the Chinese government will be one of the few in a position with the capital to spend on a project of this size,” says Evan Ellis, an expert on Chinese-Latin American relations at the US National Defense University. “Although ultimately unlikely, the strategic significance of a Chinese-financed canal, whose governance would not necessarily resemble that of the Panama Canal Authority in Panama, would be enormous.”

But in courting China, Nicaragua would be in direct competition with its neighbors. Earlier this month, Honduras announced that a separate Chinese firm, China Harbour Engineering Company, is going to build a $20 billion, 600-kilometer “dry canal” freight railroad to move shipping containers between the two oceans. Guatemala is also moving forward on a $10 billion dry canal and claims its project is further advanced and more realistic than Nicaragua’s.

Former president backs project

While many remain skeptical of Nicaragua’s aspirations, the dream of building a canal here is one of the few visions that has remained constant over centuries of tumultuous political changes.

Nicaragua remains so far behind the rest of the world economically and developmentally that it needs a megaproject like the canal just to have a chance at catching up, says former conservative President Enrique Bolaños (2002 - 2007).

“Nicaragua urgently needs development,” Mr. Bolaños says. “A megaproject such as the canal could help provide stabile and even accelerated economic growth.”

The former president says if the project is done correctly, with a concerted effort to reforest the countryside and protect the watershed required to host a canal of this sort, Nicaragua could achieve economic and environmental sustainability.

“I hope that Nicaragua knows how to negotiate, build, and operate a canal in a way that is patriotic, transparent, honest, and commercially viable,” says Bolaños, whose administration also tried but failed to build a canal.