Overview

The Nicaraguan government and the Hong Kong Nicaragua Canal Development (HKND) Group, the private development firm undertaking the Nicaragua Canal Project (“the Project”), have often publicized the projected economic gains that would result from such a venture. However, to date, “No economic or environmental feasibility studies have yet been revealed to the public” (Nature). This has only fostered feelings of distrust amongst Nicaraguans, as it remains unclear if the economic benefits of such a project are worth the various costs (e.g., economic, environmental).

(click to enlarge)

Cost & Terms 

In June of 2013, the HKND Group was awarded a concession to the Nicaragua Canal Project. Under the agreement, HKND would invest $40 billion in the Project in return for the right to operate and manage the canal for up to 100 years. The Nicaraguan government, however, would maintain a controlling interest and receive regular income from the canal.

While the Nicaraguan government originally estimated the cost of the Project to be $40 billion, they have recently suggested it may ultimately cost $50 billion. Still, in the summer of 2014, the Chief Executive (CEO) of the Panama Canal Authority, Jorge Quijano, reported to the Wall Street Journal that he estimates “the project will cost more like $67 billion-$70 billion” (Wall Street Journal).

Associated Infrastructure Development 

The Nicaragua Canal Project actually consists of six-sub projects, according to Junsong Dong, the Chief Engineer of HKND. Aside from the channel itself, the Project will include the “construction of two deep-water ports, a free-trade area, tourism projects in San Lorenzo and an airport in the city of Rivas” (The Guardian). With that said, the Project creates a significant opportunity for job creation in Nicaragua.

Employement

Although significant “ground-breaking” has not yet taken place, construction is expected to take five years. In that period of time, HKND officials have estimated the Project will directly employ 50,000 people, 25,000 of which are Nicaraguans (The Guardian, New York Times). If so, employment will triple! Sociologist, Óscar René Vargas, is not convinced these figures are accurate, however. Citing a 2005 study, Vargas suggests “a project of this magnitude will require at least 11,000 engineers. Therefore, it is unlikely that the canal’s new employment opportunities will be occupied by local inhabitants who, by no fault of their own, are not qualified to complete the tasks” (Council on Hemispheric Affairs).

Economic Growth

The Nicaraguan government has repeatedly suggested the Project is a much needed opportunity that will stimulate economic growth in the Western Hemisphere’s second poorest country. The Sandinista government has boasted the canal will transform Nicaragua into the “third-fastest growing economy in the world over the next five years” (Nicaragua Dispatch).

Although no supporting research report has been released to the public, the Nicaraguan government has projected the following (Nicaragua Dispatch), with remarkable precision:

• 403,583 Nicaraguans out of poverty by 2018
• 353,935 (additional) Nicaraguans out of “extreme poverty” by 2018
• The economic growth rate increasing from 4.5% in 2013 to 14.6% in 2016
• The Nicaraguan economy doubling over five years, reaching $24.8 billion by 2018

International Trade

The economic gains from the Project are not limited to Nicaragua, however, as the canal will positively impact global trade. Advisor to the Nicaraguan government, Paul Oquist, has suggested maritime shipping traffic will increase by more than 42% by 2025 as a result of the comparatively larger – wider and deeper – Nicaraguan Canal (to the Panama Canal), which will uniquely be able to accommodate today’s largest container ships. “The Nicaragua canal will also be a timesaver,” he states, “shaving nearly 11 days off shipping routes from New York to Japan, 11 days off shipping from Chile to Holland, and four days off containerships plying the seas from Brazil to California” (Nicaraguan Dispatch).

Please see the link below for a relevant video from the Voice of America:

 

The Panama Canal

Yet, the true economic benefits of the Nicaraguan Canal remain unclear. Not only is the statistical data unsupported, but the Panama Canal has just undergone a $5.25 billion expansion project. Jean-Paul Rodrigue, an expert on transportation economics at Hofstra University, adamantly believes the following:

At least “in the medium term, there will not be a need for another canal” (Wired).

Only time will tell…