Marchen Maersk

The announcement of a $40bn plan by Chinese telecoms businessman Wang Jing that he intends to build a canal through Nicaragua to rival that of Panama, whose grand expansion project is set to be completed in 2015, was only the latest in a clutch of ambitious projects to create new arteries through Central America.

The Nicaraguan plan appears to be riddled with weaknesses – among other considerations there is the fact that the relatively unknown Mr Wang has no experience of infrastructure projects; the sheer cost of the project means investors would have to wait decades to see any return on their investment (Nicaraguan president Daniel Ortega confirmed that there would be no government funds going into the project); and the scale of the project itself – the canal, two deep water ports, a railroad between the Atlantic and Pacific, an oil pipeline and new highway – has all the hallmarks of a white elephant.

But what makes it seem even more unlikely is that Nicaragua’s neighbours also have canal plans of their own. El Salvador and Honduras have plans for a dry canal connecting El Salvador’s recently constructed La Union port with Honduras’ Atlantic coast via a railroad and highway, the construction of which has already begun. Cost estimates of the project vary, but it has been touted at as little as $2.5bn.

Meanwhile, Guatemala also plans to develop a dry canal comprising two deepwater ports, roads, rail and an oil pipeline, estimated to cost around $10bn. Again, construction of the highway has already begun, with a reported $400m ploughed into it so far. Interestingly, it appears this project is not being pitched as a direct rival to Panama as Nicaragua’s canal is, but as complementing it, with the idea that it would be able to offer service to smaller vessels of the current sub-Panamax size that could find themselves priced out of using the expanded Panama Canal.

So there we have it. Four projects – El Salvador/Honduras possibly costing $2.5bn (but probably more); Panama set to come in at $5.25bn; Guatemala at $10bn and Nicaragua at a monstrous $40bn. And three factors that will ultimately determine the feasibility of each: the effect of the expanded Panama Canal on trade in the region; how the trend in increasing vessels sizes develops over the next few years; and the appetite of investors – principally Chinese – to fund these projects.

There is one other factor that all the construction projects in Panama have thrown up – the lack of available labour, both skilled and unskilled. If any of these projects go ahead this problem is likely to recur.

COMMENTS 3


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  • Lou Roll

    August 09, 2013 at 3:34 pm

    The HKND Nicaragua canal project already includes major sub-contractors, including one of the largest US consulting firms and one of the largest Chinese engineering and construction company, both with experience in major infrastructure projects. Both appear to have already started working on the project. This is an indication that it could become reality.

    This post remarks that “the Guatemala project would be able to offer service to smaller vessels of the current sub-Panamax size that could find themselves priced out of using the expanded Panama Canal”. This statement cannot be understood, since the Guatemala canal project appear to be intended to be a dry one, only offering a rail and pipeline link between the Pacific and Atlantic ports, i.e. will not allow inter-oceanic vessel transits, while cargo transhipment costs (handling + rail transport from port to port) will be too high, except maybe for liquid bulk via pipeline. In this respect, one thinks of Mexico’s long planned Tehuantepec Isthmus rail bridge, which has never been able to be developed in a competitive fashion.

    More broadly, these projects are signals that Central America is at long last moving towards economic expansion, following up on its neighbours such as Mexico, Costa Rica and Panama and benefitting from the new “near-shoring” supply chain policies which are leading manufacturers to expand their productions in adjacent countries to the US, i.e. not only in Asia….time for the Loadstar to expand its reporting from these countries, from Mexico to Colombia!

    Reply
    • Gavin van Marle

      August 09, 2013 at 6:43 pm

      Lou,

      Several good points, certainly concerning the Guatemala project in respect to the extra handling charges of transferring cargo – presumably containers – between the ports situated on the Atlantic and Pacific. However, it ought to be noted that the Panama Canal Railway Company has developed a decent business performing a similar operation between Balboa and Cristobal in Panama.

      That notwithstanding, one has to doubt the validity of these projects if, as you suggest, the Nicaraguan canal is now underway.

      As for your final point, do you have spies in London? For a number of months we have been developing plans to open an office in Latin America, and hope to be able to make an announcement in the Autumn.

      Kind regards,
      Gavin

      Reply
  • kcs

    December 31, 2014 at 9:53 am

    Nicaraguan canal an alternate route linking Atlantic an Pacific, is a good thing. It will be able to cope with increased ocean traffic in commercial activities in the world and will complement the existing Panama canal. Additionally Nicaragua will be greatly benefited in terms of employment of a large number of people lifting GDP to HIGHER LEVEL. There WILL be BIG SOCIO-ECONOMIC CHANGE too.

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