Nicaragua Canal: bonanza or boondoggle?

The Sandinista government claims the canal will make Nicaragua the third-fastest growing economy in the world over the next five years, averaging 11.67 percent growth per annum. But others are not so sure the project will ever happen.

News Analysis.

With an unfathomable price tag, an uncharted route, unknown environmental consequences, unidentified financial backers, unclear ties to the Chinese government, and an unproven company headed by an unfamiliar man of undetermined experience, Nicaragua’s private Chinese canal project has more than a few people asking   什麼赫克?

A month after the Sandinista legislature passed a sweetheart concession law that gives recently formed Chinese company HKND exclusive rights to build, operate and own Nicaragua’s Great Canal megaproject for the next 50 to 100 years, there are still far more questions than answers. When the concession law was finally printed in the official daily La Gaceta last month, Nicaraguans were surprised to learn it was published in a foreign language (English), which only added more confusion to the issue.

HKND Group, which is based in Hong Kong and registered on Grand Cayman Island, has hired several big-gun consulting firms in an effort to bring some early legitimacy to the megaproject. But the company’s initial attempts to ease international suspicions about the ambitious endeavor have come up short.

In one of his first media interviews, HKND spokesman Ronald MacLean-Abaroa told The Nicaragua Dispatch last month that the (currently) estimated $40 billion project would be privately funded and won’t involve the participation of any government—including China’s. He said the initial feasibility and environmental impact studies, which are estimated to cost hundreds of millions of dollars, could take two years to complete and will be financed entirely by company owner Wang Jing. But even MacLean-Abaroa had a hard time offering any details about his enigmatic Chinese boss, who is now one of the most powerful men in Nicaragua—a country he’s visited twice, for a combined 48 hours.

Even in China, not much is known about Wang Jing, whose 37% stake in Xinwei telecommunications makes him a “bona fide billionaire,” according to Bloomberg news. Indeed even Wang Jing himself appears to be a loss for words when asked about his background.

In his first press conference in Hong Kong, Wang Jing’s answers left reporters scratching their heads. The 40-year-old mystery man told journalists that he has no connection to the Chinese government, is not a member of the Communist party, and is just a “normal Chinese citizen” who lives with his mother. “I couldn’t be more normal,” said the man who claims to be the chairman of 20 businesses operating in 35 countries.

Wang Jing stressed that he wants to be transparent about his canal business, but wouldn’t identify any of the investors who are allegedly backing the project. He wouldn’t even tell reporters where he went to university.

“I always hoped people would pay attention to the project and not to me personally,” Wang Jing said, according to media that covered his Hong Kong press conference. He said he doesn’t want the canal project to “become a joke or an example of a failed overseas Chinese enterprise.”

Back in Nicaragua, however, the daily La Prensa questioned whether Wang Jing was indeed joking when he presented reporters in Hong Kong with a virtually unrecognizable map of Nicaragua. In addition to being inverted, Wang’s map of Nicaragua appeared to trace an imaginary canal route that goes from Lake Nicaragua up into Lake Managua, which would be totally bananas.

Whatever route Wang Jing is planning for his canal, the Chinese businessman estimates it will take 10 years to build.

The government’s argument for a canal  

The Sandinista government promises the canal will revolutionize Nicaragua, converting the country into the third-fastest growing economy in the world over the next five years.

With remarkable statistical precision, the Sandinista government projects the canal will lift exactly 403,583 Nicaraguans out of poverty by 2018, and an additional 353,935 people will be pulled from the grasps of extreme poverty. The country’s overall poverty rate would drop from 42% to exactly 31.35% over the next five years, according to the government’s projections.

The canal will immediately push Nicaragua’s economic growth into the double digits, peaking at an astronomical 15% growth rate in 2015, according to the government.

Overall, Nicaragua’s economy will double over the next five years, reaching $24.8 billion by 2018. Employment will triple.

The canal will also change global trade, the government claims.

Presidential advisor Paul Oquist, who has been huffing around the capital with a PowerPoint presentation to give the government’s case for the canal, claims world maritime shipping traffic will increase by more than 42% by 2025. The problem, he says, is that the new generation of “Triple E” containerships are entirely too big to fit through the Panama Canal. As a result, the Nicaragua Canal, which promises to be much wider and deeper than its Panamanian counterpart, will mostly play a “complimentary” role to Central America’s other canal, Oquist says.

The Nicaragua canal will also be a timesaver, 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, according to Oquist’s PowerPoint.

Nicaraguan universities are already starting to adapt to anticipated changes in the economy. The National Council of Universities has announced new fields of study related to canal engineering, and there will be a strong focus on learning Mandarin as a second language (Lesson #1: 挖得更快 means “dig faster”).

While the government insists the canal will be a windfall for Nicaragua, Oquist chose to include a rather ominous quote in his presentation from vicious Spanish conquistador Hernán Cortés, who in 1524 wrote a letter to the king saying, “Whoever controls the passage between the two oceans could consider themselves the owner of the world.”

If that’s the case, it would be Wang Jing—not Nicaragua—who would benefit most from the canal megaproject, since the Chinese businessman will be the majority owner for the next 50 years.

International skepticism

Despite the fantastic promises of growth and glory, international doubt continues to hound the canal project. Many Latin America watchers still doubt the canal will ever get off the ground—or, in this case, into the ground.

But the fact that the project is suddenly moving forward so quickly after 500 years of being stuck in the dream phase has some analysts speculating that something is about to happen. They’re just not sure what.

“The fact that Wang Jing has indicated that he will fund the Phase I studies, and the fact that they have negotiated such a sovereignty-challenging deal says to me that Wang Jing plans to get his money out of this somehow,” says Evan Ellis, an expert on Chinese-Latin American relations at the U.S. National Defense University.

Ellis says he sees one of three potential outcomes for the Nicaragua Canal project: 1) Wang builds it up into a real project and then sells the rights; 2) Wang tries to bring in enough experienced firms to make it credible to investors; or 3) Wang plans to approach Chinese banks and construction companies when the Western investors don’t come through.

Though still “deeply skeptical that the project will go forward as currently structured,” Ellis says his thinking on the project is starting to change in recent weeks.

“I definitely do see a much higher chance that this will go forward—one way or another—than I did at first, simply because Wang Jing plans to get his money out one way or another,” Ellis told The Nicaragua Dispatch. “The question is, do you make it look legitimate then sell the rights and get out before the project collapses, or do you go forward with Chinese money?”

Though Wang Jing’s alleged connections to the Chinese government are only rumored, Ellis says it’s not unreasonable to assume there will be a stronger presence from the PRC if the project evolves. The state-owned China Railway Construction company has already been asked to do the initial feasibility studies.

“It is likely that when it is time to spend the ‘real money’ for the construction phase, the Chinese government will be one of the few in a position with the capital to spend on a project of this size,” he says. “Although ultimately unlikely, the strategic significance of a PRC-financed canal, whose governance would not necessarily resemble that of the ACP in Panama, in the new era of trans-Pacific commerce, would be enormous.”

Margaret Myers director of the China and Latin America program for the Inter-American Dialogue on Development, is also admittedly perplexed by what she calls “such an odd project” with “so little information.”

But Myers also thinks the Chinese government might eventually pony up.

“This project does not appear to be backed in any clear way by the Chinese government, although that doesn’t preclude eventual participation by government banks or other investors,” she says.

At the moment, she says, it would appear that Ortega is making a “political calculation” by betting on Wang Jing.

“Why Wang Jing? I really don’t know. But I would guess that no one else was willing to fund a project of this sort,” Myers told The Nicaragua Dispatch in an email.

The sudden hustle to get the project done is also a bit puzzling, she says.

“It is difficult to say why the project is being pushed forward at this point in time, and with such urgency,” Myers says. “Ortega is perhaps feeling his oats given his high approval ratings at home, a growing economy, and the recent maritime boundary ruling (with Colombia). It’s hard to say, though.”

In any event, the ball—and with it, Nicaragua’s centuries’ old dream of building a canal—seems to now be in Wang’s court.

“The challenge now for Wang Jing and HKND is to convince investors that this will indeed be a viable and profitable venture,” Myers said.

If Wang Jing can pull off the project that Cornelius Vanderbilt and so many others before him failed to accomplish, he certainly will no longer be any “ordinary Chinese citizen.” And he might just be able to move out of his mother’s house.

  • Thomas

    I read Wang Jing’s pitch for the project in English to investors where he said that the reason that shipping will be up so much is because of the U.S. oil miracle which will have the US sending so much oil to China that the canal will be full. Afterwards I checked that out and the USGS says after taking the US oil miracle into account the USA will not be exporting any oil when production peaks in 2020 but it will be importing a lot less. That sounds like a lie that any investor could look up on the internet just as I did. At that point every investor thinking of getting in early would be out forever as long as Mr. Jing is involved.

    It also sounds like the reason given for shipping being up is a reason for shipping to be down.

    The other thing is that this piece says the canal takes 11 days off the trip from Japan to New York City. That is true if you go around South America but it is less time to go through the Suez Canal and the Panama Canal than to go through the proposed Nicaragua Canal no matter what route it takes. This is another fact I easily turned up with an Internet search. Again once you are caught in a lie when trying to get sophisticated billion dollar investors you are toast.

    I do not know why the commenters here are expecting a Chinese governemnt bail out when HKND and Mr. Jing have worked so hard to say that Chinese government investment is never going to happen.

    • Thomas

      By the way renting and operating a Supertanker costs 14,400 per day if you want to calculate the upper limit of what a canal could charge for the time savings without competition.

  • Pedro Arauz

    It’s all “platica de picados”
    The important thing here is to find the motives for such a tango.
    If you ask me, Ortega is preparing for the post Chavismo (no $) times coming. He is also preparing his mafia for after his “presidency”.
    The canal permit is a parallel presidency.
    I think we all know the consequences of such daydreaming….

  • mike

    Very good lede, and would have been even better except you forgot the upside question mark in front of the Chinese word for “french fries”.

  • http://no Damian

    For some insights by the economist on the grand vision of China and maritime global trade.
    “China’s growing empire of ports abroad is mainly about trade, not aggression” And now Nicaragua is becoming an important piece of that puzzle.

  • http://no Damian

    El mismo articulo de el economist publicado en el nuevo diario en Español

  • John Shepard

    I always wanted to be able to say WTF ? in Chinese: 什麼赫克

    That is going to come in handy over the next five, ten, fifteen, twenty (well, you get the point) – – – years.

    In terms of going through Lake Managua: with a little more ditch the canal could hook up to the Celestial Dream Refinery in Leon from the Hopeful Little Monkey Port on the Right Side. . Everything watched and managed by the Watchful Eye Satellite. This sounds like a lot more than 15% GDP growth, maybe more like 25%. Can’t wait for the Chinese restaurants . . .

    I hope they build a bridge at Sebaco so I can still get to PriceMart . .

  • mick mordell

    All the commentary, all the analysis, the rhetoric, the hue and cry, fail to grasp the point that you can never be too cynical about the motives of Ortega and Company; you can never dismiss a possibility that the motives for any pie in the sky deal, whether a refinery, a cell phone deal, a canal, are about anything more than immediate financial gain. This is Nicaragua after all–yo no se manana.
    It’s pretty much a foregone conclusion to anyone with half a brain, that the Ortegas could not care less if the canal is built tomorrow or in 2050, or ever, but you can rest assured that the consideration and guaranteed passage of the enabling legislation came with a demand for a hefty, unrecorded, signing bonus direct into private offshore bank accounts. 25 million dollars? 50 million? It’s peanuts when you consider the scope of the “deal”. That’s all this is about–nothing more.

  • George

    Will it be built? I do not know. What I do know is that the abundance of projects that have been laughed at in my neighbourhood have all come true. When we heard a “super ferry” would arrive mysteriously from an unknown donar…A 1,200 passenger ferry arrived. And then I heard I would see the largest wind farm appear miraculously on the lakeshore…done. And the super waterpipe feeding the Pacific Coast…done. And the coast road and SJDS road paved…done. And an international airport with capacity to land the new c-series jets on Ometepe..yes, completed. And the wind towers on Ometepe as well. The new super highway on the eastern shores of Cocibolca…yes. The new super bridge joining Limon to the Pan American highway is almost complete. The list goes on and on. With each of these mega projects (in a very poor country) I chuckled and said not in my lifetime…and I hope to be around a while.
    And I know what everyone will say..”these were all poorly done and the government was not helpful.” The point is no one I know has ever in their lives seen the number of completed projects in just 5 years …and in the middle of the most serious world-wide economic collapse since 1932.
    So when I see that every major news organization has covered this story and have all unanimoulsy chuckled….I wonder.

    • Pedro Arauz

      Those are all pre planned projects. Ortega hasn’t initiated not one single new projects except for the cheating via Albanisa. He and his gang have, pretty much like the Obama crowd, no idea about an honest day work.

      • George

        Yes Pedro, I agree with you. I have already been told the canal was the previous government’s initiative. Although the previous government did not mention these projects, I have now heard that they were all underway. They may have done better in the elections if they had not kept so many secrets. Most governments brag too much but obviously the previous government kept things close to their chest.

  • ben

    George, I have not heard anything about the “super ferry” or the airport on Omotepe. Where can I see pictures of these marvels?

    • http://no Damian

      The “superferry” is the Rey de Cocibolca AKA “Brakzand” shipped from the Netherlands. Compared to what there was on Lake Nicaragua it could be called a superferry.

      The airport on Ometepe is 99% constructed. The video is from last year so they are closer to completion

      To be honest and agreeing with George, in the past 6 years a lot of infrastructure work has been completed. So now with this new project backed with reputable multinationals, a Nicaraguan concession, a will to include global investors, the blessing/grand vision and capital of China,I equally wonder…

    • George

      there are now 4 ferry’s, but just the “super ferry” was donated. I think the Dutch government. It sure makes the ride smooth! . here is an article on the new airport…but no pics. . But I have been told all these projects were the result of previous governments! amazing….

    • Brian

      There is no real airport on Ometepe. Thus far it is not much to shout about and not a single plane has landed there to my knowledge. Yet, it shows up on Google Earth with an “airport” symbol.

      Now I read today in a Chinese newspaper article that the Chinese Government Railway Company is, in fact, doing the initial work on the intitial study for the canal project.

      “One of China’s largest state-owned companies is carrying out a technical feasibility study of the Nicaraguan inter-oceanic canal project, which, if built, would be the world’s largest civil engineering project.”

      – South China Morning Post … See:

      By the way, has anyone asked the people who will be displaced and dispossessed of their property by the canal zone???

      • George

        The airport has not had a single flight yet. I must admit the new terminal building, control tower, night landing systems, back-up power, etc. etc., are now all in place! go figure. The c-series is a 105 minute flight from Miami. That would creat more changes on the island than all the new hydro, road, ferry, water improvements combined. It will also upset the tranquility that the island now enjoys. Not sure “progress” is always positive.

        • Brian

          George … I agree; the societal changes to the islanders’ way of life are of grave concern. I love living on Ometepe mostly due to the slow pace of life and safety Ometepe provides. I worry a lot about the kind of “progress” a major increase in tourism will no doubt bring … Like San Juan del Sur. We are already seeing more and more petty crime and crack cocaine on the island as it is. No, progress is not always good … Especially for the local people.

          In my home state of California most of our “secret” get away spots have become such popular destinations that the locals can no longer afford to live where they grew up, where their parents and grandparents grew up, etc..

        • car

          105 minutes from MIA? Really? where are you getting this information from, cus it’s dead wrong. even private jets, that fly higher and faster than commercial, require 2+ hours to MGA.

          also, the runway is set to be 1500 meters, well short of what even a cs100 requires.

          this airstrip will end up serving small prop planes and will have been a total waste of money. to recoup $10,000,000 it will have to operate for many years with a significant usage rate.

          • George

            Hi Car, thank-you for the correction. The C-series cruising speed is 541 mph and distance Miami-Ometepe is 1,017 miles so the flight time is actually 113 minutes. From the Bombardier web site they advertise landing length 1,356 meters and take-off at 1,463. Of course this is all hypothetical as the C-series has had many setbacks and is way behind schedule for 1st delivery. I had a look at the end of the runway and a further 300 meters appears available. But I hope we never see a jet land in our life time. Keeping all the jet traffic in Managua would be the best.

  • Ken

    Good article.

    The puzzle to me is Wang Jing. I don’t want to opine about canal economics, since I wouldn’t know what I was talking about, but I have read enough to wonder whether the canal will ever be completed or profitable if it is. Unless Wang Jing is one of the stupidest billionaires on the planet, he’s aware of the risks, yet surely he expects to get his money out and make a profit. The question therefore is how he plans to do this. I’m suspicious enough to wonder if his business plan includes something other than profiting by building a canal.

    But Ortega doesn’t puzzle me at all. The way I see it, it may not matter whether the canal is ever built. What matters is the influx of investment dollars and the adjacent projects. If someone wanted to invest $40 billion in building snow skiing resorts (and threw in an oil pipeline as well as a couple deep-water ports) Nicaragua would still benefit. Ending up with a profitable canal would just be icing on the cake.

    On the other hand, I have a high opinion of Paul Oquist, and doubt that he’s a sell out at this stage of the game. If he believes a canal will work, maybe it will.

  • Brian

    Note to Tim … Great work!

  • car

    George, not quite. the 541 is MAX cruise. no airline cruises at max for reasons of economy. also, you cannot simply calculate travel time by dividing miles by mph. once airborne, it takes quite a bit of time to reach cruise speed and altitude. then, later in the flight, in the descent phase, speed is reduced drastically.

    in the highly unlikely event there is ever commercial jet service to the island from MIA, the travel time will certainly be a few minutes more than to MGA. figure 2:20.

    i’m astounded and saddened that the whoretega crowd built an airport on the island. waste of money, destruction of the environment. and all for what? to say they did it? sorta like the unused airport in greytown. 12 million dollars for a handful of tourists.

    yeah, the sandinistas are doing SO much good.

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