(Detailed PDF Map)
The Nicaragua Canal Project
The construction of a transoceanic canal through Nicaragua was initially an alternative considered before the Panama option was retained in the 19th century. From the late 19th century to the 21st century the Nicaragua Canal option resurfaced from time to time with various stakeholders expressing interest at constructing or financing the project. However, these interests never went further than surveys and feasibility studies that traced possible routes (see above map).  In 2013, the Nicaragua Canal option again came at the forefront with the announcement that a 100 year concession was being set with a Chinese company registered in Hong Kong (HKBD Group). In late 2014, a route was officially retained.
The route is divided in two segments connecting Lake Nicaragua. The West Canal from the Pacific crosses the Isthmus of Rivas at Brito, a segment of about 26 km. One lock system is expected to be built midway along this segment. Then, Lake Nicaragua is used for 107 km. The East Canal connects Lake Nicaragua to Caribbean Sea over 127 km and will also require the construction of a lock. On both sides of the expected canals, new ports will be built. This project is a highly challenging endeavor for the following reasons:
  • Construction costs. The expansion of the Panama Canal underlines the technical feasibility of the Nicaragua project, but also its engineering complexity and costs. Due to the length of the canal, several physical obstacles (e.g. Isthmus of Rivas) necessitating the construction of locks, as well as the requirement to accommodate large ships (at least 14,000 TEU) in both directions at once, construction costs would be very high. Some estimates place this at more than 40 billion dollars, but megaprojects are almost always plagued by delays and cost overruns. This represents a very high sunk cost before any revenue can be generated. In comparison, the expansion of the Panama Canal will cost over 6 billion dollars. Securing long term financing is thus a challenge because of high costs and limited knowledge about potential returns on investments. It is worth underlining that there are no diplomatic relations between China and Nicaragua, implying that financing could not come from government sources.
  • Geophysical and environmental risks. The proposed canal passes in an area of volcanic and seismic activity, one of the reasons why Panama was initially retained for a transoceanic canal. There is thus a risk of potential damage to infrastructure and even closure. The project would also go through wetlands and conservation areas, implying negative impacts on the ecosystem.
  • Political risks. Nicaragua has an history of political instability and its governance system is thus prone to risks. According to Transparency International, its corruption perception index for 2013 was 29/100, which is very low (ranked 130 out of 176 countries). Nicaragua is thus perceived to be a highly corrupted country where the rule of law is problematic. Major transoceanic canal projects, such as the cases of Panama and Suez, have required to setting of an independent governance structure managing the infrastructures and the operations. They are self-financed and highly independent from political interventions. It is uncertain if such a governance structure can be established in Nicaragua, increasing risks to investors and potential users.
  • Market potential. The Nicaragua Canal project is designed to accommodate the long term expectations of substantial growth in global maritime trade, particularly in Latin America. The recent years have underlined that global trade is experiencing lower growth rates, particularly concerning its main drivers; North America, Europe, Japan and China. It remains uncertain to what extent this shift will be compensated by a growth in trade concerning Latin American countries, including their relations with new trade partners such as China and India.
  • Competition. There are already strong competitors for the Nicaragua Canal project, which is thus unable to take the "first mover" advantage. The high construction costs would put pressures on the Nicaragua Canal to impose high tolls for capital recovery. The expansion of the Panama Canal is expected to come online early in 2016, which would bring substantial additional capacity, but comparatively to Nicaragua, would face less pressures to impose high tolls (less capital investment). If needs be, Panama would also be able to respond with a second expansion phase, placing additional competitive pressures. Furthermore, the North American and Mexican landbridges would also offer niche alternatives, in addition to the several dry canal projects pursued by several Central American countries.
Still, the Nicaragua Canal project remains a technically feasible option that may not be suitable in the current commercial context, but could eventually take shape. However, this is usually a stepwise process requiring the presence of port infrastructures on both facades as well as an highway and rail corridor. As of 2016, the project has stalled and limited information has been released concerning its status.