gE Blog Series: Global Shipping Industry Part 4 - Nicaragua’s Canal Project Faces Major Obstacles

The expansion of the Panama Canal has overcome labor disputes, legal battles, and even technical issues, but the project is almost complete. When projects such as these occur on such a massive scale, big delays and budget overruns are inevitable, but usually the financial backers can always find the money to complete the projects.  However, this may not be the case for the Nicaragua Canal. This canal is being built in order to allow large Post-Panamax ships to travel as the Panama Canal’s current locks are not big enough. Nicaraguan officials also believe that the investment will boost the economy and living standards. The canal would be one of the largest infrastructure projects in human history, but many are skeptical as no evidence of actual construction has been found since August 2015, despite the Nicaraguan government insisting that ground was being broken.

Organizers insist that the canal will be completed in 5 years, even though the shorter in length Panama Canal took over a decade to build. The estimated project cost is $50 billion dollars and the new canal is expected to be 172.7 miles, which is four times longer than the Panama Canal. Double-digit growth was driven by the canal in recent years, which has improved a transport sector that makes up a quarter of the country’s $80.81 billion GDP as of 2014. Additionally, it has helped to push per capita income above $20,895. Nicaragua, on the other hand, is the poorest country in Central America, with a GDP of just $27.58 billion in 2014 and a per-capita income of just over $4,918. Chinese billionaire Wang Jing is heading the Hong Kong Nicaragua Development (HKND) Group that is in charge of the project, but in 2015, he lost more than 80% of his fortune in the Chinese stock market crash.

Also causing delays are the ongoing environmental and engineering reviews. The design for the canal is being fine-tuned in order to be more in accordance with regulations contained in a recently done environmental impact assessment. According to this assessment, the canal could potentially damage Lake Nicaragua and infringe upon, or even displace protected areas and indigenous territory. International civil rights groups are vehemently opposing the canal for these reasons. Officials have responded with potential solutions of adjusting the route in order to offset these concerns and ensure that the project is in compliance with international standards, however these claims remain highly controversial.

Not only are there problems in constructing the canal, but future implementation problems have also been widely discussed. According to Captain Andrew Kinsey, a maritime risk consultant, it already takes a long day to travel along the Panama Canal. The Panama Canal is only 48 miles long, and because the Nicaragua Canal is proposed to be much longer, this could potentially require ships to either layup at night or have to navigate in the dark. In addition, the project could exceed cost projections, likely reaching $100 billion dollars, causing the fees charged to shippers having to be double Panama’s. Since the two canals are so geographically close, price and safety would be their main distinguishing factors, aside from the Post-Panamax ships that are unable to travel through the Panama Canal.

Many believe that the canal is only being built because of a desire for influence, power, and money. Professor of Management at West Virginia University, Usha Haley, states that frequently, there can be a leakage of funds not only to companies, but also to the governments of these emerging economies. Evidence of corruption can be found in the multitude of previously failed projects because of a near-total lack of financial transparency. It appears that Wang is still dedicated to funding the project, but if he decided to eventually abandon it, he would not be the first to do so. Construction of the locks as well as big excavations are expected to start towards the end of 2016.