Caribbean & Central America - June 2018 (ISSN 1741-4458)

In 2013, the decision by the Nicaraguan government led by President Daniel Ortega to award the Hong Kong Nicaragua Canal Development (HKND) Group a build-operate contract for a 171-mile canal that would span the country, linking the Pacific and Atlantic oceans, made headlines due to the massive scale of the project and the fact that it presaged greater Chinese involvement in Central America. Due to be completed by 2020, the project envisaged free-trade zones, international ports, tourist resorts, and an international airport, and was trumpeted as Nicaragua’s express ticket out of poverty. Five years on, the project’s future seems increasingly uncertain after the telecoms business owned by Wang Jing, the Chinese tycoon behind the HKND Group, took a plunge on the Chinese stock market and China began to shift the focus of its attention to Panama, with which it initiated diplomatic relations in 2017. Since then reports in April 2018 that HKND had abandoned its offices have further fanned speculation regarding the project’s future.

From the start, Nicaragua’s Inter-Oceanic Canal was shrouded in mystery: feasibility studies were carried out but were never published; Wang refused to disclose the identity of the investors willing to foot the US$50bn bill for the project; and although work on the access roads started in 2014, the digging of the waterway itself never began, making it increasingly unlikely that the 2020 deadline will ever be met. One of the first questions that came to mind was why Wang, who was listed among the 200 richest people in the world in the Bloomberg Billionaires Index, would wish to back the construction of a canal in Nicaragua, especially when he had little or no experience in infrastructure projects?

According to reports published by The Associated Press (AP) and BBC in 2015, Wang became interested in the canal project after Nicaragua’s telecoms minister Orlando Castillo visited his office in September 2012 to ask whether his telecoms company, Xinwei Telecom Enterprise Group, would be interested in bidding for a broadband contract in Nicaragua. Suspiciously, Xinwei was awarded the contract two months later for US$20m after three rival companies dropped out. Although Wang claimed Xinwei had secured deals worth over US$5bn, in Cameroon, Ukraine, Cambodia and other countries, AP found that in 12 of the 20 countries where Xinwei had done business, there was no sign of successfully completed large-scale projects.

A high-tech wireless project in Cambodia had failed to launch after a series of delays, Xinwei’s local partner in Zimbabwe had its licensed revoked by government regulators, and Xinwei’s partner in Cameroon has been accused of making false performance claims. What Xinwei did appear to have, though, was a very close relationship with the Chinese government and Communist Party leaders, who regularly visited his company’s headquarters, according to the BBC. Most importantly, Xinwei had access to credit lines from China’s state-owned banks and in 2011 the China Development Bank granted the telecoms giant a US$2.1bn credit to fund its overseas expansion.

All of this served to fuel suspicions that the Chinese government was behind Nicaragua’s Inter-Oceanic Canal, which would have been deep enough to allow Chinese submarines to cross from the Pacific to the Atlantic Ocean, with the aim of breaking into a region that has been considered the US’ ‘back yard’. However, Wang always dismissed claims of Chinese geopolitical interests driving the project. “Now the global economy is so developed, you can't say anything is anybody’s backyard,” he told the BBC in March 2015. “This canal will benefit the US economy. I think Americans will be happy to see it.”

Iran also expressed an interest in the canal, with Iran’s foreign minister Mohammad Javad Zarif stating that the project opened up a whole array of opportunities for cooperation with Nicaragua, as he led a delegation of 120 Iranian business people and economic officials on a tour of Latin America that included Cuba, Ecuador, Chile, Bolivia, and Venezuela, in September 2016.

Environmentally unsound

From the outset, the project was dogged by massive opposition from the indigenous and rural farming communities that would be displaced by the construction of the canal (27,000 according to HKND and up to 100,000 according to opponents, out of a population of six million).

These communities created the protest group Consejo Nacional para la Defensa de la Tierra, Lago y Soberanía (‘Consejo Nacional’) in November 2014, a coalition that demands the repeal of Law 840 that authorised the development of the canal and associated projects. The council claims there was never any genuine consultation with the affected communities, which violates international treaties such as International Labour Organization (ILO) Convention 169 on the Rights of Indigenous and Tribal Peoples and has reported repeated threats and harassment against its members.

As a result, in July 2017, rural organisations that oppose the canal took their case to the Inter-American Commission on Human Rights (IACHR), alleging that thousands of Nicaraguan people’s rights had been violated. Nicaraguan political scientist José Dávila told LatinNews on 3 March that such widespread opposition to the canal was “a key factor that contributed to the collapse of the project” as environmentalists and opposition leaders from both ends of the political spectrum rallied behind the peasant movement in opposition to the canal.

Wang’s fortune evaporates and with it hopes of building the canal

In October 2015, Wang’s US$10bn fortune suffered an 84% drop on the Chinese stock market, the worst recorded in the index. As Xinwei’s shares came tumbling down, so did the Inter-Oceanic Canal project. A month later, HKND’s environmental studies for the canal were approved by the Nicaraguan government. However, HKND said the construction of the locks and excavation work had been delayed until the end of 2016, remaining tight-lipped regarding the reasons for the delay. The excavation of the waterway never began.

Derek Scissors, a resident scholar at the US-based public policy institute American Enterprise Institute (AEI), where he focuses on the Chinese and Indian economies and on US economic relations with Asia, says the project was “fraudulent from the beginning” and disputes the theory that the Chinese government was behind the project all along. “The purpose of the project was for Wang Jing to become more important than he was, by marketing an idea and bringing in a state-owned enterprise, like China Railway Engineering, who could actually do the work,” Scissors told LatinNews on 2 March. “It [the project] was stifled because the Chinese entity had nothing close to the capital or engineering expertise to conduct the project and those few Chinese companies that did have the capability never had any interest.”

The Beijing Consensus in Central America

Over the past 15 years, China has become a major trading partner and source of foreign direct investment to an increasing number of Latin American countries, a trend that has also extended to Central America. In April 2018 the Dominican Republic became the latest country in the sub-region to make the switch from Tapei to Bejing, following in the footsteps of Panama in June 2017 and Costa Rica, which became the first country to establish diplomatic ties with China in 2007. In 2017, China signed 19 trade accords with Panama, a country that had inaugurated the expanded version of its canal a year earlier.

Sophie Wintgens, an expert on China’s foreign policy towards Europe, Africa and Latin America at the private, Belgium-based Université Libre de Bruxelles, believes relations between China and Latin America show evidence of what she calls the “Beijing Consensus”, a Chinese model of development based on innovation and self-determination. “Within the context of [US President Donald] Trump’s protectionist trade agenda, China could use steadily increasing trade and investment to obtain access to Central America’s emerging markets, gain political partners, and increase its normative influence,” Wintgens writes in an article published in November 2017 by the London School of Economics (LSE) academic blog. Panama’s new diplomatic ties with China would seal the fate of Nicaragua’s Inter-Oceanic Canal. “The enlargement of the Panama Canal as well as the fact that Panama began diplomatic relations with China dealt a huge blow to Nicaragua’s Inter-Oceanic canal project. China, very pragmatically, swapped Nicaragua for Panama,” says Dávila.

Can Nicaragua’s Inter-Oceanic Canal ever be revived?

Panama’s enlarged canal has faced its own problems – the inauguration of the project was delayed for more than a year as a result of an acrimonious cost dispute between the canal administrator and the Spanish-led building consortium and even two years after the expanded canal was inaugurated, tugboat operators continue to express concern about the fact that ships rub against the canal’s walls and wear out defences designed to protect both shipping and the waterway.

One of the most serious incidents occurred a few weeks after the expanded canal opened in June 2016, when a Chinese ship hit a lock wall and made a hole in the side of the ship, forcing a delay in the trip.

With increasing traffic through the canal, the construction of larger ships, and unresolved technical issues affecting the performance of the Panama Canal, is it possible that Nicaragua’s Inter-Oceanic Canal could be revived? Dávila is convinced that “the Inter-Oceanic Canal project, as it was conceived by Wang Jing, is dead” and predicts Ortega will try to save face by saying the Canal is going to happen even if only a handful of secondary projects, such as an airport, a few hotels or a port, actually come to fruition.

Nevertheless, as long as Law 840 authorising the development of the canal and associated projects is not repealed, indigenous and peasant communities continue to feel threatened by the possibility that the government might expropriate their land to make way for such projects, and have vowed to keep fighting their case in the highest international courts.

According to Dávila, the Inter-Oceanic Canal is just one more project that Ortega can add to his administration’s list of failures, which also includes: 1) a huge oil refinery named El Supremo Sueño de Bolívar on Nicargua’s Pacific coast that was supposed to be funded by the Venezuelan government and was also dogged by fierce opposition from environmentalists (Ortega and the late Venezuelan President Hugo Chávez (1999-2013) laid the symbolic first stone in 2007 but after ten years the first phase is yet to be completed); and 2) the Tumarin hydroelectric plant that was supposed to be funded by the Brazilian government and floundered after the scandal involving Brazilian construction and engineering firm Odebrecht broke. The construction of the plant was supposed to begin in 2015 with an inauguration date set for 2019 but never happened. In an attempt to save face, the Ortega administration has set 2023 as the new date for the construction to start so that the plant is up and running by 2030, claims that have been met with scepticism and derision by Ortega’s opponents.

Scissors, on the other hand, doesn’t rule out the possibility that Nicaragua’s Inter-Oceanic Canal might be resurrected in the future but stresses that “any future attempt will have nothing to do with the original plans”.