Tuesday, August 13, 2013

Nicaragua Inter-oceanic canal: A wise move?

By María Julia Mayoral

Nicaragua could, within a few years, become a new international logistics and transportation center, if an inter-oceanic canal megaproject succeeds in this country blessed with an enviable geographic location.

"Central America sits midway along both North-South and East-West trade routes," said Chinese executive Wang Jing during a visit to Managua, "We believe this is the ideal place for another link between the Atlantic and Pacific Oceans." The company he leads has been granted a concession to undertake the canal project.

According to international estimates, between 2011 and 2025, maritime trade traffic will increase some 40% and providing a route through Nicaragua for large cargo ships would provide significant savings in terms of fuel and days at sea.

The Hong Kong Nicaragua Canal Development Investment Group (HKND), with headquarters in the Chinese city cited and Managua, is optimistic about the venture, according to Wang Jing, president and executive director of the company.

HKND Group received exclusive rights over planning, design, construction, operation and management of the canal and other related projects, including ports, railroads, free-trade zones on both coastlines, airports and a cross-isthmus oil pipeline.

"Trends in world trade and maritime transportation indicate that there is demand for a new canal. Our intention is to build a world class project, developed in accordance with the best international practices," the company announced.

The framework for the concession was signed in Managua mid-June by Nicaraguan President Daniel Ortega and the company’s directorate, while the country’s Parliament approved two pieces of legislation supporting the agreement.

Experts and established companies have been contracted to undertake studies of the project’s environmental, social, financial and technological feasibility. The British consulting firm Environmental Resources Management will independently evaluate the project’s social and environmental impact, in order to determine the most appropriate route for such a canal, which could require five to ten years to construct.

Building a second Central American canal, substantially larger that the existing one, makes sense to HKND. Estimates indicate that the volume of Panama Canal transactions could increase 240% by 2030, while the value of all goods transported through canals in Panama and Nicaragua could surpass 1.4 billion dollars.

According to this analysis, continual growth in trade volume could lead to congestion in Panama within 10 to 15 years, clearly suggesting that another route is needed.

As for possible savings, HKND has estimated that a ship traveling from Shanghai to Baltimore in the United States, using a Nicaraguan canal, could shorten its voyage by 4,000 kilometers in comparison to a common route currently taken through the Suez Canal and by 7,500 in comparison to a voyage around South Africa's Cape of Good Hope. Considering current fuel prices, an average-sized container ship could save a million dollars on one round trip using a new canal.

Preliminary estimates indicate that a new inter-oceanic canal could capture maritime traffic carrying 450 to 500 million metric tons of goods and serve ships up to 250,000 tons, 400 meters long and 59 wide, with draughts of up to 22 meters.

Paul Oquist, the Ortega administration's secretary for public policy believes that the canal will allow Nicaragua to practically double its gross domestic product (GDP) by 2018 and triple formal employment. With the beginning of necessary studies and works associated with the canal next year, Oquist estimates the GDP could increase by 10.8% and by 12.6% in 2016, to subsequently stabilize around 9.5 to 10% annual growth by 2018.


Nicaragua granted a concession for construction and future operation of the canal, but did not privatize its territory. Additionally, the state is participating as a partner and its ownership share will expand over time, Oquist clarified.

The concession granted the Chinese company is for 100 years but should not compromise national sovereignty, since the country will hold 51% ownership within 50 years, according to Deputy Foreign Minister Manuel Colonel Kautz, who is heading Nicaragua's Gran Canal Authority.

A canal connecting the Pacific and Atlantic oceans through Nicaragua has been a long-standing dream, one which was frustrated by foreign interests in the early 1900's, added Francisco Mayorga, the country's representative to the Inter-American Development Bank.

The 1914 Chamarro-Bryan Treaty mortgaged national territory to the United States government, effectively preventing the development of a canal similar to Panama's within Nicaragua, the official explained.
The United States had used its military and economic power to force Nicaragua to forego constructing a canal without U.S. participation, to protect its interests in the Panamanian isthmus, Mayorga concluded. (Orbe)

August 01, 2013