This blog was confident that the Nicaragua Canal would not be built because it makes no business sense. That is still our position. That said, it is increasingly likely that construction is about to start on ... something. We would still bet against that something being the Gran Zanja.
First, the financing. Where will it come from? HKND used to strenuously deny that there would be any Chinese official involvement with the project. But the business plan still does not make sense and private sources are unlikely to come through. Now, however, HKND is saying that the Chinese state is willing to put up the money. “Mr. Wang is looking at this issue intensely and working with Chinese state businesses that will have a small amount of participation in this project and will finance a great part of this project. And then we have to go out into the international markets once we are ready to.”
If Beijing has decided that the People’s Republic has decided that a Nicaragua Canal, then one of the biggest arguments why it will never happen goes away.
But we do not know if the Chinese government has made that decision! For what it is worth, the Costa Rican government directly asked Chinese representatives about the PRC’s official position. How did the Chinese respond? “They have told us on two occasions that as of today there is no endorsement. We do not know if in the future China will be interested in participating. That is a sovereign decision, but we believe that the proper stringencies will be complied with.”
Second, construction is due to begin on December 22nd. But don’t get too excited. The first works will consist of “auxiliary roads and port construction, not the ditch.” Other announcements have omitted the port construction; it looks like the work might be just sixty miles of macadamized roads. Even HKND admits that the December 22nd date is symbolic.
We will know when the effort gets seriously underway. HKND officials met with representatives of the Nicaraguan farm sector. Michael Healy, the head of the farmowners’ federation, reported that “they are talking about demand for 37.5 tons of rice, 25 tons of vegetables and 12½ tons of beef, pork and chicken, per day.” [Italics ours.] The request led the agriculturalists to suspect that HKND intended to bring about 50,000 of their own workers, because “The Chinese didn’t ask for a single pound of beans or corn, which it seems are not part of the Chinese diet.”
It is worth noting that while Nicaragua can probably provide the meat, it would need to import most of the rice and a lot of the vegetables.
In short, a serious effort will see massive imports of food and construction materials, as well as mass hiring of Nicaraguans and the arrival of thousands (if not tens of thousands) of Chinese workers. It won’t start on a dime.
Third, there is a lot of opposition in Nicaragua, not least because the new law says that landowners will be compensated at the cadastral value of their land, not the market value. The Changjiang Institute has been conducting surveys around Rivas, and the Chinese surveyors have needed police and military protection. And you can add to the opposition to mass expropriations three other things: (a) opposition to the potential arrival of thousands of Chinese workers; (b) opposition to the Panama-Canal-Zone-like 500-meter security zone on either side of the canal; and (c) general opposition to the renunciation of Nicaraguan security. It is not clear that the domestic politics of the project will hold up.
We return to our initial conclusion: the Nicaragua Canal is about the side projects. Look at this presentation. The side projects are much more developed than the Canal. (The map above shows the port complex on the Pacific, which will in effect be a Chinese charter city.) HKND is enveloped in a web of weird related companies that seem perfectly designed to channel profits to Nicaraguan politicians but not so much for raising $50 billion.
In short, while it is possible that Beijing might throw its weight behind the Gran Zanja (also sometimes evocatively called the Canal Rojo) we remain skeptical.
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