AJOT Insights

Passage to the East

Dec 13, 2016

In 2012 with all good intentions, Chinese billionaire Wang Jing formed the Hong Kong Nicaragua Development Group (HKND). His vision: to create a new route to the Caribbean.

A Grand Scheme

Registered in the Cayman Islands, HKND’s mission was “to oversee the design, construction, operation and maintenance of a new canal and transportation hub in Nicaragua.” The project would provide carriers and their clients with “a compelling option for trade and transport that will enhance the efficiency and cost effectiveness of global trade.” Three times longer than the Panama Canal and deeper than the Suez; the Grand Canal would allow passage of the world’s biggest ships from the Pacific Ocean to the Caribbean Sea. A new age in Trans-Pacific shipping would be born. Construction would include the building of new seaports, holiday resorts, an international airport and a Free Trade Zone. It would certainly bolster Nicaragua’s modest agro economy bringing it fully into the new age of mega shipping. How could Wang Jing and President Ortega go wrong?

The Lay of the Land

At 3,191 square miles, Lake Cocibolca or Nicaragua as it is commonly known is the largest body of fresh water in Central America. It would form the backbone of the new canal. Engineers proposed a Pacific lock at Brito connected to a second “Camilo Lock” at Punta Gorda via the lake and interconnected waterways. At an estimated cost of $50 billion, work was begun in December 2014 with an anticipated completion date in 2020.

The Dream Unravels

Cows graze in the field where construction began that December and no work has been done since. One wonders why two years later the dig isn’t significantly underway. You could say the Canal suffers from a host of words ending with the “e sound”. That’s right, the best explanation for the lack of progress is Economy, Ecology, Geography, Archeology and last, but not least, Sociology.

Let me explain

Economy: Six months after the project began, A-Shares trading on the Shanghai Stock Exchange took a tumble losing a third of their value. This marked the beginning of several months of turmoil, and by July of 2015 the market had fallen 30 percent. Half the listings on the exchange called for a halt in trading to stem further losses. The intent was to fund the canal through partnership with the Nicaraguan Government and private enterprise, but a considerable share of the initial capital was posted by Wang himself. It’s been reported that during the near collapse of the Shanghai Market, Wang Jing lost 80% of his fortune. At a critical point in the dig, Wang had other things on his mind.

Ecology: The canal will utilize Lake Cocibolca and several interconnected rivers as its main route across the country. Cocibolca provides a natural watershed for millions of plants and animals not to mention providing fresh water to Managua and surrounding communities. Realizing the hazard of dumping untreated waste, the government is taking steps to reclaim this vital resource.

By comparison Canada has invested $355 million to restore and protect the Great Lakes. In 2009 the Obama administration pledged $475 million to clean up our lake system. I offer this comparison because our Great Lakes see extensive commercial marine traffic. National environmental groups and ecologists worldwide are fighting to keep commercial traffic out of Nicaragua’s fragile ecosystem. HKND is facing an uphill battle for commercial use of the countries land and water resources.

Geography: The Grand Canal would be 3.5 times longer than the Panama Canal (286 km vs. 82 km), cutting across the entire width of Nicaragua. It takes a ship about 10 hours to transit the Panama Canal. Can you imagine the logistical nightmare of transiting an entire country? A ship would have to layup overnight or run in the dark to make the transit. This poses additional hazards to navigation which should have ship owners thinking twice about the HKND canal. There are also concerns about seismic activity in the area.

Archeology: Prior to commencement the group conducted field surveys along the canal’s potential route. In December of 2015 Pre-Columbian artifacts were discovered in the Brito area surrounding the initial construction site. More than 5,000 pieces of pottery and artifacts dating from 500 BC were presented to the Nicaraguan government. To date construction has been halted through January 31, 2016 while further archeological studies are conducted. Sociology: The government granted HKND the authority to relocate people along the route. Human rights activists however point to Mr. Wang’s power to appropriate land at only 5% above market value. The Rama people have lived on islands in Lake Cocibolca for centuries. The canal would cut right through their fishing grounds forcing them to abandon their very way of life.

Thoughts to Ponder

Larger than Life: When the project was conceived Panama was just beginning to expand their locks. The Mega-Ship boom was taking shape and trans-load ports in the Caribbean were gearing up for larger ships. In the intervening years load centers east of Cristobal have built out to accommodate 12 to 14,000 TEU ships. A canal which could accommodate the “largest ships afloat” seems a bit over the top.

China Go Home: The Rama and other indigenous people may be forced to give up land they have fished and hunted for centuries having no legal title to it. In protest many homeowners have painted “Go Away Chinese” on their houses. Instead of helping the people of Nicaragua the project could actually disrupt the economy.

In for the Long Haul:

Wang Jing’s management team continues to seek financial support in spite of some overwhelming odds and obstacles. Their website notes media coverage and corporate news through September promoting the benefits of the Grand Canal. Now that the new Panama locks are open however, it might be even harder to convince ship owners the value of another “Passage to the east”. A Canal through Nicaragua, can you dig it?

Author Photo
Matt Guasco
INF Marketing and Logistics, Inc.