Chapter 2 – Economy of Nicaragua
2.7. Impact of Nicaragua Canal Construction to the Economy of Nicaragua
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2.7. Impact of Nicaragua Canal Construction to the Economy of Nicaragua
In February 2012, President Ortega proposed to build the Nicaragua Canal, officially known as the Nicaragua Canal and Development Project, to promote national economic development. He believed that although the Panama Canal can meet the needs of cargo transportation between the Pacific and the Atlantic, it was necessary to develop a second and more economical canal in the Americas to cut costs and time of land and sea transportation for the shipment of industrial products from China and other Asian countries to Central and South America, as well as the shipment of raw materials from Latin American countries, such as Venezuela and Brazil.
In addition to the joint participation of Venezuela, Cuba, Ecuador, Bolivia and other allies in this project, the plan will also seek funding from Brazil and China, which has attracted the attention of domestic and international businesses. The canal is expected to cross Lake Nicaragua from the Brito harbor on the Pacific side to the Punta Gordo River on the eastern Caribbean coast. It is planned to be about 278 kilometers long, 27.6 meters deep, and 230 to 520 meters wide, and would be three times longer than the Panama Canal. The Ortega administration calculated that the construction of the canal was expected to create about 50,000 jobs for the initial five years of its construction and an additional of 200,000 job opportunities when the canal is operational.69
The project was approved on June 13, 2013 via Law 840 that enforced the previously created institution of the Interoceanic Grand Canal Authority of Nicaragua in 2012 to be part of the Commission for the Nicaragua Canal Development Project and supervise the planning,
69 Silva (2019). After Six Years, Wang Jing Could Not Guarantee Investment for the Interoceanic Canal. La Prensa, June 13, 2019, laprensa.com.ni/2019/06/13/nacionales/2559459-tras-cinco-anos-wang-jing-no-pudo- garantizar-inversion-para-el-canal-interoceanico.
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construction, and future operation of the canal.70 President Ortega and Wang Jing signed the Framework Agreement of Concession and related documents of a total of 120 pages on the following day. In the following year, in July 2014, the HKND Group and the Nicaraguan government announced the definitive route of the canal, which was expected to be completed by the end of 2019 with a total construction cost of about US$50 billion financed by the HKND Group.
However, the Nicaraguan citizens did not have much trust in the government‘s decision to grant concession to a Chinese company. In addition, the proposed canal route passes through the largest freshwater lake in Nicaragua, which is opposed by environmentalists, fearing that its construction would pollute Lake Nicaragua and damage the natural ecology along the route. The Nicaraguan government wanted to use its geographical advantage to obtain political and economic benefits, as well as expanding its influence and capacity to attract foreign investments in Central America, so that it could uplift the Nicaraguan people out of poverty. The efforts President Ortega showed when pushing for the realization of the canal construction demonstrated his commitment to reverse the economic circumstances Nicaragua was caught in and to achieve the long awaited dream of building a waterway canal that has started since the 1800s.
The following chronological events will try to explain the Nicaragua Canal in more detail:
Back in 2013 when the deal was made, the initiative seems to be very positive, and was a great opportunity to lift the country from poverty, generating hundred thousands of jobs upon its completion. However, it has made little to no progress since the inauguration of the
70 Official Law 840. Approved on June 13, 2013. Available at: legislacion.asamblea.gob.ni/Normaweb.nsf/b92 aaea87dac762406257265005d21f7/914d10ad15d09a2f06257b9e004c82e8?OpenDocument
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construction in late December 2014, largely due to Wang‘s lack of construction experience, and the decline of his personal wealth due to the collapse of Xinwei shares when the Chinese stock market crashed in mid-2015 that continued to early 2016. There were some rumors that the Chinese government was supporting this project, but the government denied having any affairs to do with it because if they do, the U.S. government might intervene, and that was the last thing anyone one of them desired. Especially under the situation where President Daniel Ortega just won the reelection in 2012, and is preparing to run for the next presidential election in 2016 along with his wife as the vice president.
On November 7, 2016, Wang Jing sent a message congratulating President Ortega and his wife on their victory of the general election and pledged to fulfill the construction of the canal. However, due to the expansion of the Panama Canal in mid-2016 that enabled transit of ships with an overall length of 366 meters, width of 49 meters, depth of 15.2 meters, and capacity of 13,200 TEUs to go through its third set of locks, the prospects of building a Nicaragua Canal was worrisome. The local newspapers and media sent reporters in late December and early 2017 to check on the progress of the construction sites and only to find out empty dirt roads, describing the area where large ships would go through as a quiet road where cows and horses can be seen instead.71 In April 2017, the Chinese technicians and employees at the HKND Group office in Nicaragua abandoned their posts and left the country, and no news regarding the topic was heard from the Chinese company. The company went as far as shutting down its home office in China and taking down its official website from the Internet in 2018, leaving no address or telephone number for anyone in Nicaragua or potential investors to contact them at.
71 Silva (2019). After Six Years, Wang Jing Could Not Guarantee Investment for the Interoceanic Canal. La Prensa, June 13, 2019, laprensa.com.ni/2019/06/13/nacionales/2559459-tras-cinco-anos-wang-jing-no-pudo- garantizar-inversion-para-el-canal-interoceanico.
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In 2019, leading environmental lawyer concerning the canal, Mónica López, notified the local daily newspaper La Prensa that in the Framework Agreement of Concession signed between President Ortega and Wang Jing contained a clause that stated if the concessionaire did not obtain financing to develop the project within six years since the signing of the agreement, the Government of Nicaragua was compelled to withdraw the concession.72 The Nicaraguan Peasant Movement led by Medardo Mairena celebrated on June 13, 2019 that the Nicaraguan government will have to cancel the concession terms to the Chinese firm, and said that they would continue to demand the repeal of Law 840 because of it ―orders the expropriation of the land‖.73
However, on August 13, 2019, President Daniel Ortega announced that new projects of environmental studies for the interoceanic canal would continue and make necessary adjustments. He also shared his views on the failures of past canal construction attempts, stating ―the powers, from England to Spain […] want to dominate the route to make the canal, and then the United States with its troops intervening in Nicaragua … imposing a treaty74 on Nicaragua so that Nicaragua could not make any concession to any country. It was when the United States said, as it means now, ‗America for the United States‘, why? Because they had no competition in Europe‖.75
It became clear from the interview the author had about the Nicaragua Canal (see
72 ibid.
73 Arias, Alma Vidaurre, et al. ―Canal Law Meets Deadline to Be Repealed.‖ El Nuevo Diario, 14 June 2019, elnuevodiario.com.ni/nacionales/494398-canal-interoceanico-nicaragua-ley-hknd/.
74 The Bryan-Chamorro Treaty signed in 1914 by William Jennings Bryan, U. S. Secretary of State under the Wilson administration that frequently intervened in Latin American affairs, and Emiliano Chamorro from the politically powerful Chamorro family which represented the Nicaraguan government, which granted the U.S. the rights in perpetuity to construct a canal across Nicaragua with a renewable option of 99 years to establish and operate a naval base in the Gulf of Fonseca, located on the Pacific coast by the borders of El Salvador, Honduras, and Nicaragua, plus another renewable option of 99 years for the lease of the Corn Islands, located on the east of the Caribbean coast, with the purposes of protecting the proposed canal when completed and operational.
75 Daniel Ortega: ―We have not given up‖ on the great interoceanic canal. August 13, 2019. Retrieved Feb 2020.
https://www.elnuevodiario.com.ni/nacionales/498858-daniel-ortega-canal-interoceanico-nicaragua/
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appendix B) that if completed and operational, it can compete with the Panama Canal since it is able to permit larger ship containers, up to 25,000TEU with future option to expand to admit an additional 6,000TEU. Most importantly, they mentioned that the calculations and studies indicated that the canal should help reduce the overall poverty rate by 11.2 percent and the extreme poverty by about half, guaranteeing several hundred thousands of job opportunities in the free trade zones, tourist centers, and the operation of the canal.
In addition, PRONicaragua organized a comparative analysis of the cost and time of marine transportation between the Central America countries and the major ports of the United States. The days spent traveling from port Corinto in the Pacific side of Nicaragua to the port of Los Angeles takes about 11 days, which is 3 days quicker compared to Panama.
Most importantly, exporting from El Bluff port located in the Atlantic side of the bay in Bluefields would reach the port in Miami in just 3 days, which is 6 days faster compared to Panama (see table 12).
The price, however, is more expensive in Nicaragua compared to Panama due to its less developed ports that are unable to handle the docking of large container ships, provide transportation for its large supply volumes, as well as not being able to enjoy the benefits of granting subsidies to the transportation costs since the canal is not built yet. As of 2018, the average cost for both sides of the oceans would average above US$830 in comparison to Panama. It is already at a competitive price when considering the low cost of services in Nicaragua, such as the renting of houses, apartments, and condominiums, and telecommunication services, as well as reasonable cost of water services and energy (PRONicaragua, 2019).
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Table 12. Transportation cost and time between Central American countries to U.S. ports.
Countries
Los Angeles, CA Miami, FL
Cost US$ Days Cost US$ Days
Costa Rica 1,890 20 2,393 12
El Salvador 2,685 9 1,860 3
Guatemala 2,185 8 1,715 3
Honduras 3,345 9 2,095 3
Nicaragua 2,675 11 2,215 3
Panama 1,670 14 1,560 9
Source: Sealand, 2018. Available at: pronicaragua.gob.ni/media/publications/Investor_Guide line_2019_D6yuVmj.pdf