Nicaragua Canal's Prospects Remain Dubious, Despite The Hype

Business Monitor International (BMI)'s pessimistic view on the viability of the proposed Nicaragua Canal continues to play out, with the project facing strong opposition. The bill for the concession has been submitted to the Nicaraguan Supreme Court of Justice on demands of unconstitutionality, and private investors are keeping away due to the lack of transparency in the process. However, HKND – the Chinese consortium created for the project – continues to make bold announcements on the progress of the concession, including a selected route for the canal and a even a tentative date for completion.

In July, the president of HKND, Wang Jin, announced that the canal's route had been selected. This seems premature, in our view, as the contract was only awarded seven weeks ago and there were six possible routes to consider. Nevertheless, the chosen route starts at Hound Sound Bar in the South of Isla del Venado in Bluefields Bay, connecting with the Escondido River, Rama River, Oyate River, Lake Nicaragua, Las Lajas River, and Brito River. Feasibility studies are still underway.

In another bold move, Wang Jing has assured observers that the canal's construction will start in December 2014 in order to reach completion in 2019. This seems rather ambitious, as similar projects have taken at least ten years to be built. In terms of attracting investors, the high cost of the project and competition from the nearby Panama Canal will make the Nicaragua project profitable only under subsidised transit fees.

The Nicaragua Canal project continues to raise strong opposition from all fronts, including political parties, NGOs, local communities, and indigenous groups. The law that authorises the construction of the canal has already received more than thirty appeals for unconstitutionality. Opponents argue that this concession is in breach of forty articles in the National Constitution. The Supreme Court of Justice will announce in mid-October 2013 whether the concession is legal or not. Another major concern is the environmental impact on Lake Nicaragua, which is a vital source of water for human consumption.

Despite its dubious viability, the canal has attracted a lot of interest from different actors, including the American-Nicaraguan Chamber of Commerce (Amcham), which organised a conference with representatives of HKND and members of the agency in charge of environmental studies – the Environmental Resources Management (ERM). The outcome of the conference confirmed our view that the lack of transparency and basic guarantees on the concession process are preventing the involvement of the domestic and international private sectors to support this project.

Further analysis of Latin American infrastructure projects is available to subscribers at Business Monitor Online.

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