Construction has also been begun on a canal across Nicaragua that would compete directly with the Panama Canal and indirectly with the Suez Canal. Skepticism abounds, however, that the Nicaragua canal will be ever be completed — not the least because of its $50 billion price tag.
Wang Jing, a Chinese telecommunications billionaire, is behind the 278-kilometre long project, which would traverse Lake Nicaragua for about half its length. The project has also spawned protests against its feared environmental impacts, including displacing about 27,000 people, the Wall Street Journal reported recently.
Dr. John Taylor, Associate Professor and Chairman of the Department of Supply Chain Management at Wayne State University in Detroit, said it doesn’t make economic sense to build such a costly and massive piece of infrastructure so close to the existing Panama Canal. “Competition is always good, that’s for sure,” Dr. Taylor said. “However, duplicating two major pieces of infrastructure means a doubling of enormous fixed costs that will have to be covered,” he added. “So it really could destabilize the existing Panama Canal system, which has massive bonds to pay off now. How are they going to pay those bonds off if half their traffic goes to another place?” Dr. Taylor said. And with two parallel systems taking on huge bond debt, he said, it’s hard to make a business case for the Nicaraguan canal. “Shippers could certainly benefit in the short run from the competition, but you’ve got to wonder about creating such instability that both places would have trouble maintaining their debt repayments.”
Even if Chinese investors wanted to finance the Nicaragua canal without any debt, “they’re still going to really mess up the debt that the existing Panama Canal has rung up,” Dr. Taylor said.