It’s not a new idea. Cornelius Vanderbilt for one had the same vision. For over a century and a half there have been dreams and schemes of building a canal across Nicaragua linking the Pacific to the Caribbean Sea and the Atlantic Ocean. The Panama Canal’s construction put an end to the early plans but not to the concept of an alternative, shorter route through Nicaragua.
The latest incarnation of the idea began in 2012, when Nicaragua’s President Daniel Ortega’s government signed a MOU (Memorandum of Understanding) with the newly created HKND (Hong Kong Nicaragua Development Investment Company). In June of 2013 the Nicaraguan National Assembly approved legislation to grant a 50-year concession to HKND to build and operate the “Nicaragua Grand Canal” (also called the Nicaragua Interoceanic Grand Canal). It’s estimated the roughly 178-mile canal will cost $40-billion to build compared to the roughly $5.25 billion being spent on the expansion of the neighboring Panama Canal.
Finding the Money
The chairman & ceo of HKND is Wang Jing, who is the biggest shareholder in Xinwei Telecom Technology Co. Wang Jing, is often described as a telecom billionaire (he’s ranked 14th in China at $1.4 billion by Forbes) and has said of the canal project, “All our actions will be guided by the principles of respecting sovereignty, protecting environment, benefiting people and spurring economy and undertaken in the spirit of openness, fairness, integrity and transparency.”
Nevertheless, as Chinese billionaires go, very little is known about Wang Jing and the Xinwei Group, outside of China. The company was formed back in 1995, and is described as being a homegrown communications technology company in the mobile phone and Internet sector. Even nineteen years after the company’s formation there is considerable speculation surrounding how Wang Jing raised the initial capital for the venture.
This is not to say that there haven’t been a number of Xinwei projects outside of China – notably the Chinese telecom group has a deal in the Ukraine (see Ukraine stories), as well as Russia. More to the point, Xinwei is said to have inked a deal in Nicaragua for a mobile license to develop mobile voice and Internet services: the investment is said to be in the $300-million range.
The $40-billion question is can HKND raise enough cash for the development of the new “grand canal”?
It has been reported that Wang plans on putting in the initial capital and then raise the remainder through investors. Certainly, Hong Kong and China have potential investors. One need only look at Li Ka-shing’s Hutchison Whampoa group for both the financial muscle and expertise to pull off the extraordinary project.
It’s easy to understand the logic behind the dream. A canal through Nicaragua would both be shorter and has the potential to handle much larger ships than even the expanded Panama Canal. Furthermore, there is an argument to be made that there might be enough traffic for both canals.
Geopolitically, much has been written about China gaining a foothold in the Americas by the building the “alternative” to the Panama Canal. There is no question that China has made a concerted effort to develop trade relations in Latin America. In nations like Brazil, Chile and Peru the desire for raw materials has forged trading and investment links with China.
But there is a question of price. There is nothing to suggest that $40-billion will be enough to build the canal. The Panama Canal expansion cost overruns already provide an ample example of the problems of mega-projects in Central America, or indeed any place.
Finally, even if the canal is built at the $40-billion target, will the canal dues be too expensive for ship-owners to use? There is a real question as to whether the price of canal dues necessary to meet financial obligations will be competitive with the alternatives.
Ship-owners will choose the most financially advantageous solution, whether it is the Panama Canal, Suez or even rail services. Will the marketplace doom the project to being a “White Elephant” that drains the nations coffers like water pouring from one of the canal’s locks?
Will HKND build Nicaragua’s Grand Canal? Perhaps, the PRC development company will succeed where others have failed but it is interesting to note that one of the few countries that hasn’t recognized the Peoples Republic as the legitimate government of “China” is Nicaragua.
