• China invests in Great Nicaraguan Flop


    Ben D. Kritz

    THREE years ago, with great fanfare, Nicaragua’s leftist government announced the launch of an almost mythical project: The Grand Nicaraguan Interoceanic Canal (GNIC), a waterway stretching from the country’s Pacific to Caribbean coasts, passing through Lake Cocibolca that stretches across the western half of the country.

    The canal would be built and operated by a Hong Kong-based consortium, the HKND Group, which was to invest $50 billion in the project.

    The scale of the canal project was incredible: The canal itself would be 520 meters wide and between 27 and 30 meters deep, and the entire project would comprise six sub-projects, including two harbors (one at each end); locks on the Caribbean end to pass over the Continental Divide, a 29 square kilometer free trade zone, an international airport, several tourist centers, and several new highways. In addition, the project would also require a hydroelectric plant, cement factory, and other industrial facilities to supply the construction work, which was to begin in 2014 and be completed by 2019.

    From the outset, the canal project was controversial. Several times since the mid-19th century, attempts have been made to establish a canal in Nicaragua, which is geographically the easiest terrain an interoceanic canal could cross, but every one failed due to political, financial, or technical challenges.

    Some were skeptical of the HKND Group, which is believed to have the backing of the Chinese government (although the consortium denies that), largely because HKND has steadfastly refused to disclose the sources of its $50 billion stake, although it says the funding is “guaranteed.” Many analysts and business media have, in fact, drawn complaints from Beijing for portraying the GNIC as a symbol of China’s “ambitions in Latin America,” where they are also pursuing mining, agriculture and other infrastructure investments.

    And of course, there were the environmental and social protests one would expect in a third-world country with the plan of an infrastructure project of this magnitude. The GNIC would force the relocation of several thousand people, and cut across the lands of at least eight native communities; in addition, it would affect several known archeological sites, and might impact some not yet discovered.

    The government of President Daniel Ortega—the one-time Communist guerrilla who has been president since 2007—was adamant that the project, whose cost is roughly four times Nicaragua’s annual GDP, would be an economic boon. Three years later, however, the entire grand scheme seems to have evaporated.

    An investigation by news agency IPS earlier this month found no trace of work being done on the canal, and no one from the HKND Group was even in the country. The only thing that was ever done was the start of a new “highway”—a dirt track several kilometers long that is used mainly by wandering cows and donkeys from nearby farms. The last activity of any sort listed on the HKND Group’s website—the canal is the company’s sole project—was an archeological study done in August of last year in an area where the canal would pass through the remains of a 15th-century salt-making workshop.

    Both the company and the government insist the GNIC is moving forward, but almost no one believes them any more. In January, apparently in response to persistent questions about the project, the government announced that another new road would be built, and went so far as to move some construction equipment to the designated site, but has done nothing since.

    Because no one in the Nicaraguan government or the Hong Kong group will speak frankly, what went wrong is a matter of speculation. Some have suggested HKND doesn’t have or is unable to obtain funding, in spite of their reassurances; some have even speculated that the whole concept was simply launched as a scheme to create a case for an investor-state dispute (ISDS) claim.

    One interesting theory is that the whole thing fell apart due to Donald Trump’s election as President in the US. With the growing antagonism between the US and China, thanks to Trump and his big mouth, building a canal in America’s backyard would be too provocative a move by China, and so it was quietly shelved, so the theory goes.

    A more likely explanation, although one that is not more or less proven than any other at this point, is that the combination of resistance from local communities, combined with a downturn in the marine shipping industry and the expanded capabilities of the Panama Canal farther south, eroded the potential value of the project. In that case, the HKND Group decided to suspend it until circumstances improve, and will eventually quietly withdraw if they don’t improve within a few years.

    If there is a lesson in the strange story of the GNIC, it is that developing countries should not put too many eggs in one basket or bank on pledges when it comes to big-ticket foreign investments. Nicaragua thought it had the key to a golden future, but only ended up with a new dirt road and a lot of awkward questions that may never be answered.



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