Caribbean & Central America - January 2022

Nicaragua has become the latest Central American nation to end relations with Taiwan in favour of recognising China, and, if previous moves by neighbouring countries are anything to go by, it can expect a wave of investment from Beijing in return.

Cosying up to China makes sense for Nicaragua’s President Daniel Ortega amid increasing international isolation and deteriorating relations with the US, and the move could have interesting ramifications in the region more widely. The decision was announced on 10 December, and swiftly followed by a vote to end a 2006 free trade agreement (FTA) with Taiwan in the Nicaraguan legislature. Taiwan expressed “extreme regret” at what it called a “unilateral” decision, and the US also condemned the move.

US State Department spokesperson Ned Price issued a statement on 9 December slamming Nicaragua’s “sham election” on 7 November and arguing that the resulting re-election of Ortega “did not provide it with any mandate to remove Nicaragua from the family of American democracies.”

However, China wasted no time in rewarding the Ortega government for its decision, delivering a shipment of 200,000 Sinopharm vaccines against the coronavirus (Covid-19) on 12 December. This is the first batch out of a total 1m vaccines promised by Beijing and is just the beginning of Chinese cooperation. Central America used to be a bastion of support for Taiwan, but in recent decades Costa Rica (2007), Panama (2017), the Dominican Republic (2018), and El Salvador (2018) have all switched allegiances to China.

Following its switch, Costa Rica received a new national sports stadium that opened in 2011, signed an FTA with China that same year, and then received phytosanitary permits for pineapple exports in 2017. It also agreed a contract to upgrade the No. 32 national highway in 2015, and a US$50m donation to a transportation infrastructure programme. However, in November 2021 Costa Rica’s deputy minister for multilateral affairs, Christian Guillermet, told US international broadcaster Voz de América that commercial relations with China hadn’t been as successful as officials would have wanted. The same media cited official figures which show that Costa Rican exports to China only increased from US$37.8m in 2011 to US$121.6m in 2019.

Chinese efforts in Panama focused on the Panama Canal, including adding extra capacity to the Colón Container Terminal and building a 4km-long bridge over the canal to connect Panama City to Panamá Oeste province worth US$1.4bn.

At the end of December 2021, El Salvador’s government led by President Nayib Bukele confirmed that construction would begin this year on a Chinese-funded new national sports stadium. This is in line with Bukele’s previous announcement of that initiative along with other Chinese-backed projects which include a national library and water sanitation projects which Bukele said were worth US$500m.

Possible cooperation

The same day that Ortega assumed office for his current term, on 10 January, the Nicaraguan and Chinese governments announced the signing of four bilateral agreements: a general cooperation agreement, a Memorandum of Understanding (MoU) regarding cooperation in the framework of China’s Belt and Road Initiative (BRI), an agreement relating to visa exemptions for holders of diplomatic and official passports, and an MoU regarding the establishment of a mechanism for political consultation.

Further agreements could include phytosanitary agreements to allow Nicaragua to export coffee and fruit, while there may be other agreements to set up a Confucius Institute in Managua or allow some Nicaraguan students to study on scholarships in China. But more importantly, the MOUs will open the door to Chinese investment in infrastructure projects such as ports and highways. While Nicaragua, and Central America more widely, does suffer from an infrastructure deficit, the benefits of these projects could be limited by the fact that China tends to insist on using Chinese firms, labour, and bank loans to execute them.

One project of particular interest is the proposed inter-oceanic ‘Gran Canal’ project in Nicaragua. In 2013 the Ortega government granted the now-dissolved Chinese firm Hong Kong Nicaragua Canal Development (HKND) the US$50bn concession to build and operate the project which would have obvious strategic benefits for China in that it would end its reliance on the Panama Canal for interoceanic trade, but it has not advanced despite Nicaraguan government approval. The canal is hugely controversial in Nicaragua, but the move towards closer relations with Beijing will reignite speculation about its future.

Others to follow suit?

Across the border in Honduras, President-elect Xiomara Castro also pledged to switch the country’s allegiance to China on the campaign trail. While her team have somewhat rowed back on this position more recently, perhaps in order not to damage relations with the US during a tense transition period, Honduras could well become the latest Central American nation to cut ties with Taiwan in the next few years. If this does come to pass, it would create opportunities for Chinese-funded cross-border infrastructure projects in the Gulf of Fonseca, a 162-mile bay on the Pacific Ocean, which is shared between El Salvador, Honduras, and Nicaragua. It would mean those three nations had more scope to operate independently of the US, and also leave Guatemala and Belize as the only Central American nations that recognize Taiwan.

In January 2021, Guatemala and Taiwan announced a new MoU for US$60m in aid for new projects in Guatemala over the next four years. According to the document, the funds will be assigned to “support development projects agreed by both nations”, which will aim to provide assistance to the “most vulnerable populations”, although further details were not provided. In December 2021, Guatemala’s President Alejandro Giammattei used a speech in Washington to reaffirm the country’s commitment to relations with the US and Taiwan over China. Similarly the speaker of Belize’s legislature pledged continued support for Taiwan during a meeting with President Tsai Ing-wen in early December.

However, Beijing continues to work to bring supporters of Taipei into its orbit and seems unlikely to give up on that goal. At the very least, those countries which maintain relations with Taiwan will likely be able to demand more financial support to stop them switching sides, although, as mentioned by Giammattei, the desire to ensure continued US support may influence their decisions.

For those that have embarked on a new relationship with China, the amount of investment they receive may depend on China’s own economy, which has hit choppier waters than during the boom times of the early 2000s. If the malaise deepens, officials in Beijing may have to concentrate on problems closer to home, rather than expanding their influence halfway across the world, and countries that switched allegiances recently may find they have distanced themselves from the US “family of democracies” without much to show for it in return.

• Taiwan and Nicaragua

Taiwan has been a longstanding ally of Nicaragua, serving as one of its main bilateral donors in 2020, providing US$28.0m of the total US$245.67m in bilateral assistance on official figures. A report dated 11 December by government mouthpiece el19Digital tallied bilateral trade between Nicaragua and Taiwan in 2020 at some US$168m. While trade with mainland China was just under US$50m, el19Digital considers that trade with Taiwan has “probably reached its peak” while the government expects that this year, in just a few months, trade with mainland China will exceed that with Taiwan.