Fernando Menéndez, principal of Cordoba Group International LLC, a political and economic analyst and Contributing Editor at TrendingCentral.com, analyzes the numerous canal projects now on the drawing board. The inset video by LAB Editor Javier Farje, was produced for HispanTV during his recent visit to Nicaragua.

Guatemala is not the first place that comes to mind when you think about a canal between the Pacific Ocean and the Caribbean Sea.

Besides, the Panama Canal is already undergoing an expansion of its capacity to accommodate the latest class of super tankers through the isthmus. But everywhere you go in Central America today there is talk of new canals and of China’s willingness to pay for them.

 

Three major projects are under study and development. In Daniel Ortega’s Nicaragua, the Chinese are planning to invest in excess of $40 billion on a new canal project. The amount is five times Nicaragua’s annual GDP and leaves little to chance. The canal will welcome ships of every size and tonnage, with a transoceanic railway system, highways and oil pipelines, shipping ports on both coasts, airports, and free trade zones along the way. All of this contracted by HK Nicaragua Canal Development, a Hong Kong-based company, owned by businessman Wang Ying.

The project is expected to generate no less than one million jobs in an economy whose current labour force is over two million.  As a result of the project, Nicaragua’s GDP is estimated to grow at a 15 per cent annual rate. Mr. Ortega is counting on the realisation of the canal as a way to stay in power indefinitely.

Possible routes for the Central American canals.

Some of the isthmus routes discussed over the years.

A dry canal, to be built across Honduras, is a bit more modest coming in at $20 billion, but it will be equipped with a high-speed rail system powered by a hydro-generated plant in the Gulf of Fonseca. China Harbour Engineering Company has designed and will begin construction on the project as soon as President Porfirio López signs the necessary agreements.

Recently, Guatemala completed feasibility studies for its own canal complete with “a natural gas and oil pipeline, a high-speed highway and a railway line.” The 390 kilometre project will cost approximately $10 billion, and Chinese investors “have a special interest in the oil pipeline to transport Venezuelan petroleum,” from the Caribbean to the Pacific.

So far, Chinese companies have committed themselves to over $70 billion for the three main canals in Honduras, Nicaragua and Guatemala. The obvious question is: why three canals instead of one, given the small size and poverty of the region? The viability of such projects and a competitive race to the bottom are real threats.

According to one study by ODEPAL (Latin American Business Links Office), a group promoting the Guatemala canal, a Panamax category cargo ship, travelling at 13 knots with a carrying capacity of 55 to 80 thousand DWT (dead weight tons), takes 35 days and $1,846 per 20-foot container to cross through the Panama Canal. That is three days and $169 per container more than it would cost to go through Guatemala’s dry canal.

Other experts challenge the estimates. According to PIERS, a US firm, a ship travelling from Shanghai to New Orleans will pay $548 per 40-foot container through the Panama Canal and $2,038 through the proposed Guatemala corridor. The numbers, some experts argue, do not add up.

Nor are the Panama Canal and the three proposed projects the only actual and potential projects afoot in the isthmus. Costa Rica, the only country in the region with full diplomatic relations with China, is planning an inter-coastal super highway, while Colombia is similarly negotiating with China Railroad Engineering Company to build a dry corridor between Bahía Solano on the Pacific and Acandi in the Caribbean.  Not to be left out, Mexico is projecting a canal through the Tehuantepec isthmus. El Salvador, which has no Caribbean coastline, seems the odd man out.

Massive increases in transit, potential corruption and geopolitical considerations are all serious concerns. Terrorist and organized crime networks involved in narcotics and human trafficking raise enormous difficulties. Instead of focusing on projects of regional integration and growing market opportunities within the various countries, however, each country is working on its own and having a hard time turning down serious Chinese cash.

One thing remains consistent throughout the region: the lack of a long-term strategic perspective and the consideration of unintended consequences.

Fernando Menéndez, principal of Cordoba Group International LLC, is a political and economic analyst and is a Contributing Editor at TrendingCentral.com

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