Thursday, January 22, 2015

Viability of Nicaraguan canal uncertain as trade patterns shift



The proposed Nicaragua Canal may have a hard time finding private investors. Making the case for a second waterway connecting the Pacific and the Atlantic may be a hard sell due to current global trade patterns.

In 2013, the Nicaraguan government awarded a 50-year concession to Hong Kong’s HKND Group to build and operate the canal. HKND started construction on the gargantuan project last month, saying it said would cost $50 billion and be operational by 2019.

With the global manufacturing base shifting to South and Southeast Asia, more shipping lines are expected to transit via the Suez Canal to reach the U.S. East Coast.

Andy Lane, partner at Container Transport International Consultancy, doesn’t know why the

canal would be a good bet for potential investors.

"Let's assume $25 billion is spent on the canal itself - the other half on hotels, roads, airports and free-trade zones that HKND also plans to build along the canal," Lane said. "Assuming global trade grows at 6 to 7 per cent per annum during the concession period, and also assuming that the Nicaragua Canal will in 10 years' time take more than 60 per cent of the expanded market share and the rest by the Panama Canal, the annual internal rate of return after 25 years would be less than 2 per cent."

He added that these assumptions were skewed in favor of the new canal and were highly unlikely in the real-world scenario.

For more of the South China Morning Post story: www.scmp.com


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