Caribbean & Central America - February 2025

Nicaraguan officials have proposed a new route for an interoceanic canal across the country, hoping to take advantage of burgeoning relations with China to bring a long-held ambition to fruition.

Plans for the new route were greenlit following constitutional changes approved by the legislature on 22 January, allowing the state to authorise concessions for the construction of the “Gran Canal”. This came after President Daniel Ortega unveiled the new proposal for the canal at the XVII China-Latin America & the Caribbean (LAC) business summit in Managua on 18 November.

The route will link Bluefields, Nicaragua’s main Caribbean port, in the South Atlantic Autonomous Region (Raas), to Corinto port, Chinandega department, passing through Lake Managua (Xolotlán), rather than running from Bluefields to a proposed port at Brito, on the Pacific coast in the southern department of Rivas via Lake Nicaragua (Cocibolca), the largest freshwater lake in Central America, as per previous proposals.

The original plan was floated more than 10 years ago but appeared to have been abandoned after Hong Kong Nicaragua Canal Development Investment Company (HKND), the Chinese company which won the US$50bn concession to build, operate, and manage the initiative, was dissolved.

Ortega has been preparing the ground for a revived project for some time. In May 2024 the 92-member unicameral legislature, which is completely controlled by Ortega’s Frente Sandinista de Liberación Nacional (FSLN), approved reforms to the law regulating the Gran Canal. These revoked the law (840) which granted the concession to HKND and amended the law (800) establishing the autonomous authority of the Gran Canal Interoceánico de Nicaragua (AGCI), the oversight body for the project.

This appears to be an effort to strengthen control over the project, which is highly controversial due to concerns about the environmental impact, violation of property rights, and lack of transparency surrounding it.

The legitimacy of these concerns was recognised in November 2024 by the Costa Rica-based Inter-American Court of Human Rights (Corte-IDH), an arm of the Organization of American States (OAS). The court issued a ruling which found that the Nicaraguan state had violated the rights of indigenous people in relation to the Gran Canal initiative. These included violations of the rights to property, judicial guarantees, and a healthy environment through failing to carry out appropriate prior consultations or environmental and social impact studies.

The ruling is unlikely to have any impact on Ortega’s plans, and the president is now in a stronger position to put down any opposition. Nicaragua withdrew from the OAS in 2023, accusing it of meddling in the country’s domestic affairs, and Ortega has become even more authoritarian since. Recent constitutional reforms give him and his wife, Vice President Rosario Murillo, extraordinary powers and further increased their ability to repress internal dissent.

Building a Gran Canal is also made more likely by Ortega’s rapidly strengthening relations with China since the two countries established bilateral relations in December 2021. For example, the government has announced a string of agreements with Chinese companies, including an engineering, procurement, and construction contract for Bluefields port which was signed by the transport & infrastructure ministry and Chinese firm CAMC Engineering. 

China has shown an increasing interest in interoceanic links in Central America in recent years. It is reportedly considering investments in a rail and road project across Honduras, as well as in the Gulf of Fonseca, a natural harbour on the Pacific shared by El Salvador, Honduras, and Nicaragua. This interest has also been spurred by increasing concerns over the viability of the Panama Canal as recurring periods of drought have led to transit restrictions.

However, while conditions may be more favourable this time around, building such a canal would be a massive undertaking. The proposed route is 445km long, all of which would need to be newly built aside from a 55km section that would run through Lago Xolotlán. It would also involve two sets of locks, one close to the Pacific coast and another on the Caribbean side, which would create a huge artificial lake. 

Other considerations:

Even if financing for the Gran Canal can be secured it would take years to build. At the same time, Panama is working to secure water supplies for its canal to maintain operability, and Mexico is investing heavily in an interoceanic railway across the Isthmus of Tehuantepec, which links the ports of Coatzacoalcos on the Atlantic coast and Salina Cruz on the Pacific coast. While Nicaragua has not released details on the estimated cost of the Gran Canal, it is likely that improving on these existing interoceanic routes will be cheaper and arguably more cost effective than a brand-new canal. However, if US President Donald Trump follows through on threats to “take back” control of the Panama Canal and starts to restrict access for Chinese shippers, Beijing may be incentivised to invest in a Nicaraguan alternative.