Economics of Nicaragua Canal Hard to Determine

Published Date : Aug 10, 2015

China’s highly talked about construction of the Nicaragua canal is facing some difficulties. The current status of the canal makes it hard for an economic case for the much talked about construction.

The construction of the 172-mile canal was expected to cost nearly US$40 billion as per early estimates. Now, the construction of the waterway is expected to cost nearly US$50 billion. Jorge Quijano, the CEO of Panama Canal Authority has said that the project will almost cost US$67 billion to US$70 billion, even more than what the fresh cost estimates are.

Advocates of the canal say that the Nicaragua canal will have an advantage over the Panama Canal because the Nicaragua canal will have lanes wider than the Panama Canal and will help accommodate a new generation of carriers. Yes shipping economics suggest that the insistence on including a Central American passage for accommodating the larger vessels is highly unlikely to get materialized.

Extra large carrier ships are used to carry goods from Asia to the U.S. West Coast ports, where the cargo is then transferred by railroads and trucks to America. But cargo ships carrying Asian goods that go for the Eastern Seaboard by crossing the Panama Canal make many ports of call from Halifax and the Gulf Coast.

Many of these crossing pots are also not able to accommodate the largest cargo ships, and so the insistence on taking them through the canal is not observed.

If the demand is considered and a passage for the largest cargo ships is decided to be built, Panama has the option of building a fourth, much wider set of locks at a cost that will be a fraction of the cost required to develop one such passage in the Nicaragua canal.