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New Panama Canal highlights ambition of Nicaragua plan

Tuesday, July 5, 2016

The expansion of the Panama Canal gives a sense of both the opportunities and the risks facing the Nicaraguan project

With global shipping sluggish, there may not be sufficient demand for two trans-American canals... The ambitions of Nicaragua Canal dwarf its counterparts... However, the sheer scale of the project raises doubts over its feasibility

Source: Panama Canal Authority, HKND Group, media reprts, Oxford Analytica

Outlook

Since it opened on June 26, over 170 ships have registered to traverse the expanded Panama Canal. The Panama Canal Authority hopes to earn some 2.8 billion dollars in 2017.

However, the waterway arrived two years late and 2.1 billion dollars over budget. That should be a warning for the Nicaraguan authorities who are set to embark on a far more ambitious, 50-billion-dollar canal project towards the end of 2016.

Pre-existing competition, sluggish trade growth and the downward pressure that low global fuel prices could exert upon canal fees all present challenges for the project before construction has even begun. Moreover, with ethical and environmental questions arising over the route and the displacement of peoples, domestic opposition will be strong.

Impacts

  • Despite being over budget and facing a sluggish shipping industry, the Panama Canal looks set to make a good profit and boost Panama's GDP.
  • The expansion may transform the liquified natural gas trade, allowing large tankers to transport the fuel via the canal for the first time.
  • The start of work on the Nicaragua Canal will see protests, which could overshadow the November 6 presidential elections.
  • Should the Nicaragua Canal be built, insufficient demand could pull down canal revenues in both Panama and Nicaragua.

See also