The shadiness of the Nicaragua Canal deal is not why I doubt it will happen

Andres Oppenheimer of the Miami Herald (who wrote what was my favorite book on contemporary Mexico, until overtaken by events) is also skeptical that the Nicaragua Canal will be built. His worries come not from the contract, but from the shadiness of the deal, rushed through the National Assembly.

First, he argues, Wang Jing, the owner of HKND, has no construction experience. Second, Ortega’s son, Laureano, has “chaperoned” Wang around the country. Third, there was no public bidding. He could have added that Wang’s telecoms company, Xinwei, recently landed a $300 million contract to build a 4G network in Nicaragua (without propper bidding) and is building (with Great Wall Industries) a communications satellite for a 2015 launch.

It is a little shady ... but I would not doubt the deal because of that. Xinwei is reputable enough to raise the capital and hire the expertise for a commercially-viable project, even if they might not have been the prime contractor under a more open process. Moreover, as Oppenheimer points out, a lot of reputable Western firms and individuals are pinning their names to the project.

So I am not worried that the Canal might be smokescreen because of Xinwei’s odd relationship with the Sandinistas and President Ortega.

Rather, I am worried that the Canal is smokescreen because it makes little economic sense while the contract allows HKND to build all sorts of other lucrative stuff under 19th-century concession terms. An American company that has been trying to build a transcontinental railroad since 1995 shares my worries: it is going to be locked out of the project.

For what it’s worth, Nicaraguan public opinion is very favorable. And the truth is, unless your property happens to be expropriated, it is unlikely that the project will make Nicaragua worse off. Sure, the FTZ’s will bring less benefit than hoped, and the railroad will generate few spillovers and little public revenue, but it is better than nothing. After all, the American dry canal project has gone basically nowhere for almost two decades and President Ortega is popular. So why not? If I were nica, I’d also support rolling the dice on the project, even knowing that it much more likely to end as a big real-estate deal and quasi-charter city rather than a Nicaragua Canal.

Lastly, a brief revisit of the Panama Canal issue. Below is a map from the Panama Canal Authority showing where a fourth set of locks (i.e., the expansion after the current expansion) would go. Here is the design proposal for a new bridge over the Panama Canal, which specifically states (on page 9) that the bridge must be tall enough to handle the bigger ships from an as-yet-unbuilt fourth locks project. In fact, in 2008 the U.S. embassy in Panama reported that Roberto Solange, then the Panama Canal Authority’s VP of marketing, wanted to run a feasibility study on a fourth set even before the third was finished.

In short, the threat of a second Panama Canal expansion is very real ... and should dissuade rational investors from a full-scale Nicaragua Canal. As opposed to a smaller railroad-port project.

Comments

[pc]

Love the description of Bordering on Chaos, that mirrors my reaction. I'll have to go back and read it again some time.

[Noel Maurer]

Say, Patrick, sent me an email if you're still in D.C.

[J.G.]

We in the south are happy that this one seems to be "put to bed" for now!