Leery Canal

Old dreams die hard it seems. Dreams of a Nicaraguan canal are as old as well… the New World. Talk heated up in the 19th century before Panama was settled upon as the only feasible route. Whether it’s a resurrection of fevered dreams or Obama’s “speak loudly and carry a small stick” diplomacy or a combination of the two, but the Nicaraguan legislature just recently approved a $40B plan put forth by a Hong Kong corporation to pursue the dream yet again.

The AEI’s magazine The American has an interesting write up on the whole thing as well.

Since official sources list six possible routes for the new canal, all through Lake Nicaragua, the geological risks are still unknown. And it is possible that the risks do not really matter to the Sandinista leadership as long as construction money pours into the nation’s economy.

In fact, the economic value of the Panama Canal during its U.S. era — from its opening to traffic in 1914 to the transition to Panamanian control in 1979 under the Torrijos-Carter treaty — is also surprisingly ambiguous. One of the project’s leading scholars, the historian Walter LaFeber, acknowledged in his 1989 book The Panama Canal: The Crisis in Historical Perspective that it is an “unanswerable question” whether the $400 million investment had been amortized. The project was a “thousand-piece jigsaw puzzle which has important pieces missing,” he wrote. Construction was really about national strategy, especially East Coast access to California’s booming oil fields, which increased production from 4 million to 77 million barrels between 1900 and 1910, and mobility of the Navy. (The sea power strategist Alfred Thayer Mahan, admired by Theodore Roosevelt, had been a firm supporter of the Panama option.)

Could the Nicaraguan canal — with its railroad, pipeline, and ports — be financially viable? Backers are counting on projections of continued increase in container traffic between Asia and North America. But there are reasons for skepticism. It is not clear that we will need more capacity than the widened Panama Canal in the next few decades. Geographer Jean-Paul Rodrigue told the Wall Street Journal that the Nicaraguan canal is possibly “the biggest white elephant in human history,” and noted in an interview last year that Nicaraguan political instability made the project doubtful. The Northwest Passage and even the Suez Canal might have a growing role, Rodrigue added. For its part, the HKND Group is still free to decline construction after a new round of reviews. The company’s advisers proclaim optimism while acknowledging they still have not worked out the economics of the proposal. The HKND website promises not just a thorough engineering and economic studym but a full review of natural and social impacts by Environmental Resources Management, a major international sustainability consulting company.

At first glance it looks odd that the Nicaraguan legislature’s far-reaching concession should be granted before such studies are complete. Add the complex legal claims of Nicaragua’s southern neighbor Costa Rica to the San Juan River, warnings from environmental advocates, and possible seismic issues, and the excitement over the project seems, at best, premature. The most celebrated recent international transportation link, the Eurotunnel, took 26 years to reach a profit in 2012. In Megaprojects and Risk, the Danish economic geographer Bent Flyvbjerg and his co-authors observed that the real risks of the Eurotunnel had been “several times higher than those communicated to potential investors” in the prospectus, surely a warning regarding any big new project’s assumptions. Yet the proposal does have a domestic political function for Ortega, while for China and for Wang it promotes an aura of global influence. Surely Wang and Ortega sincerely believe in the project, but they must also be aware of the downside. Just as it is sometimes far more enjoyable to contemplate a big-ticket consumer purchase like a luxury car than to confront all the unexpected bills that come with ownership, the canal may be more valuable to the Nicaraguan government as a radiant dream than as a reality.

Go read the whole thing.

3 comments to Leery Canal

  • Matt Helm

    Will the workers be fed yams?

  • Scott M.

    Lots of bribes paid,I’m sure.Days of canals are pretty much over,given the size of most commercial ships.Ship from east Asia…well you go to the west coast of North America.This is stupid.

  • Raoul Ortega

    Like the Chinese space program (5 flights in 10 years is something we’re supposed to fear?), this is done for domestic Chinese nationalist consumption. Let the PLA and the Party sink tens of billions into this. If it fails, too bad. If it succeeds, then the Nicaraguan gov’t will nationalize it, just the way every Latin American kleptocracy steals the assets of foreign investors at some point.

    The only downside would be if the Chinese try to collect their bad debts the way the French tried with Mexico in the 1860s, or if the US gets dragged in because The Bystander-in-Chief didn’t manage to completely abrogate the Monroe Doctrine.

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