The Nicaraguan government recently released its plan to build a Nicaraguan canal as an alternative to the Panama Canal. The project is taken on by a Hong Kong-based company, the HKND Group, created solely for this purpose and guaranteed majority ownership of the Canal for the next 50 years. At this point the Nicaraguan government will become the majority owner. This contract comes amid disputes between Nicaragua, Colombia, and Costa Rica over maritime rights, and amid vast economic hardship in Nicaragua.

Why build a new canal?

There are two main arguments for the building of the Nicaragua canal. The first one is inscribed in the context of international trade. From 1980 to 2009, the global number of civilian ships increased by 74% in capacity terms, according to the World Oceanic Review. Today, the United Nations claims that 80% of global trade volume is carried by sea, which accounts for 70% of global trade value. With increases in capacity and value of maritime shipment, vessels are becoming larger and ports all over the world are expanding in order to accommodate those new and larger ships. This trend resulted in expansion projects for the Panama Canal, projected to end in 2015. While Panama celebrates the canal’s 100th anniversary, controversy erupted over the cost of the expansion, which calls for an unanticipated $1.6 billion USD. Even once the Panama Canal is expanded, it will still be too small to carry some of the supersized ships. The Nicaragua Canal, on the other hand, would be wide and deep enough to accommodate all types of vessel. Because of this, the Nicaraguan government and HKND group claim their canal will not rival, but instead complement the Panama Canal, which might be true for the largest ships; however, the two Canals will undoubtedly be competitors for smaller ships.

The benefits for international trade will be immediate. The Nicaraguan Canal will reduce travel time for the largest ships which currently cannot utilize the Panama Canal, and the opening of another mid-continental passage will decrease congestion in the Panama Canal, increasing global efficiency.

The Nicaraguan government also touts a national argument. According to them, the new Canal will bring 50,000 jobs during its 10-year long construction, and 200,000 for its management once it is up and running. The Sandinista government and HKND are hopeful it will double Nicaragua’s GDP within 6 years, and bring 400,000 people out of poverty by 2018.

Why not? There are serious ramifications for a project of this enormity.

Even though the project might double Nicaragua’s GDP in the long run, HKND and the Nicaraguan government unveiled that the upfront costs amount to $40 billion, which is roughly four times the country’s GDP. In comparison, the Panama Canal has annual revenues of $2 billion according to The Economist, which are projected to go up to $4 billion by 2025. Thus, even if Nicaragua were to capture the entire market of the Panama Canal—a total impossibility—its revenues would not be enough to justify such upfront costs, given that it would only assume majority ownership of the canal after 50 years.

Further, the Nicaraguan government is giving up sovereignty over its land and waterways to a foreign company, which is also in charge of projects such as establishing a free trade zone, ports, and other development projects. The company hails from a country with high stakes in global trade, and a growing presence in Latin America. China’s maritime trade experienced the highest growth of any country over the past twenty years. Nicaragua will be waiting a long time to feel any real benefit, if it even reaches such a point.

President Ortega has not addressed the issue of the quality of the jobs that will be created by the canal. Although it will be a great source of employment for the population, if he wants the canal to have a positive, lasting impact on the Nicaraguan economy he will need to establish a team of skilled Nicaraguan workers to prevent foreigners from taking over the highest paying jobs related to Canal management. According to Mr. Coronel, the head of the Transoceanic Grand Canal Authority of Nicaragua, there is already a team of 300-400 foreign professionals, including Chinese and British trade experts, engineers, and technicians, working on the project.

In addition, HKND has been evasive about the environmental impact of the enterprise. They claim that a two-year environmental impact study will be conducted. However, some of the biggest environmental concerns focus on the path of the canal that goes through Lake Nicaragua, which is the greatest freshwater lake in Central America and an important source of water and wildlife. The lake already suffers from pollution, but it is hard to imagine that the route could be changed to prevent passing through the lake. In this case, there will need to have environmental measures put in place – making the canal into an even more expensive enterprise.

There are strong arguments for building the Nicaraguan Canal: nevertheless, the financial burden and the issues of sovereignty — and skilled employment in particular– make the enterprise seem more a folly than a reasonable solution to poverty in Nicaragua. 

Constance Delannoy is a summer intern with the Adrienne Arsht Latin America Center