Could Building a Canal In Nicaragua Be the Answer?

Professor of Management and Strategy, Northwestern University

In 2013, Chinese interests revealed their intentions to construct a sea-level canal across Nicaragua that would accommodate ships even larger than those the expanded Panama Canal will handle. The proposed Nicaraguan canal would be about three times the length of Panama Canal (50 miles); it would be costly to build along with the logistics facilities necessary to make it viable. Beyond that, the Nicaraguan canal would encounter many natural obstacles including a massive dredging requirement across Lake Nicaragua and in other channels, as well as a history of frequent earthquakes in areas to be traversed.

Then there are other issues related to the present natural environment in Nicaragua. Disposal of the spoil from dredging is but one of them. Discharge of diesel oil and other contaminated liquids cannot be avoided in such a long canal. And Nicaragua’s position as an especially good venue to study both biodiversity and archeology would surely be reduced dramatically.

There can be little doubt that any such canal through Nicaragua would attract some traffic that would otherwise use the Panama Canal, assuming transit pricing for the Nicaraguan canal was economically rational. Cargos in ships too large for Panama to accommodate would also be lost to Nicaragua. The question is: Will a canal in Nicaragua actually be built? It is difficult to see the U.S. President, Administration and Congress remaining silent much longer given the time-honored Monroe Doctrine and the U.S. public’s negative reaction to the (unfounded) rumors that the Chinese were going to take over the Panama Canal after the U.S. turned it over to Panama.

Certainly the government of China is behind such a program as the proposed Nicaraguan canal. Also the expenditure of even $50 Billion—which could be much more—would be tantamount to buying a Central American nation, something offensive to several other Latin American countries and the U.S., and perhaps to other nations as well.

The economic viability of the project is a question for the investor(s). It depends on what is important to them and how it translates to economic returns, if at all. It is best to ask China about the project’s expected “economic viability”. It is now impossible to know how China will identify and quantify the benefits of the project. Will their canal serve to suppress Panama Canal tolls and those of Suez as well? Is China seeking to establish a new route to and from Europe that allows the largest ships while eliminating their need to traverse Suez? Will there be significant value for the investors (i.e. China) from the accommodation of ships larger than Panama can handle?

Germany and Russia are already said to be considering the Nicaraguan canal positively. But no country outside the region can reasonably declare its interest in having a new, more capable canal until China makes a final decision. Recalling that a previously proposed China-backed railroad across Colombia was abandoned, perhaps, the Nicaraguan canal faces the same fate if rationality (and U.S. policy) prevails.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of The Eno Center for Transportation.

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