In January 2015, construction of the so-called Grand Interoceanic Canal (usually called Nicaragua Canal) has finally begun. If completed, the canal would be the largest civil-engineering and construction project in the history of mankind, spanning 276 kilometers across the Central American nation. The previously unknown businessman Wang Jing, with likely approval and support of the Chinese government, estimates the cost of the construction to reach U$ 40 billion dollars, even though experts believe the total cost will be closer to U$ 100 billion dollars.
Compared to the Nicaragua Canal, the Trans-Pacific Railroad, set to cross South America and connect the Atlantic to the Pacific Ocean, is a bargain. The 5,300 kilometer rail connection, if ever built, is expected to cost U$10 billion dollars, even though the cost may increase once the feasibility studies have been completed. Environmental studies from the Brazilian Institute of Environment and Renewable Natural Resources (IBAMA) won’t be complete until May 2016.
In addition to comparable projects at home, China is experienced with large-scale infrastructure projects abroad. In the 1970s, it financed the Tanzam Railway, which links the port of Dar es Salaam in Tanzania with the town of Kapiri Mposhi in Zambia’s Central Province. At a price of U$ 500 million dollars, the project was completed ahead of schedule, and remains one of the largest single foreign-aid project undertaken by China.
Yet contrary to China and Tanzania, Brazil and Peru are home to one of the world’s most organized civil societies, and environmental NGOs have already started voicing their concern about the project’s potential negative impact on the Amazon rainforest and indigenous tribes living in the region. The Trans-Amazonian highway, built in the 1970s, accelerated the destruction of the forest as it provided illegal loggers with easy access to previously isolated regions. After all, 95% of deforestation in the Amazon occurs within 5 kilometers of a road.
The second challenge is logistical: In addition to passing through dense forest, the route crosses swamps and steep mountains before reaching the Pacific coast. Finally, the border region between Peru, Bolivia and Brazil is notorious for drug trafficking and lawlessness.
The third obstacle is Brazil’s bureaucracy, which makes the implementation of complex infrastructure projects more expensive, often prolonging time to completion. Chinese investors often end up canceling projects in Brazil after realizing that bureaucratic hurdles are greater than at home in China. This is particularly so whenever several governments in the region are involved.
Still, the project, much commented by Chinese premier Li Keqiang during his visit to Brazil and Peru in May, would dramatically reduce the transport cost of Brazilian soy and iron ore to China. While the demand for iron ore is slowing, China’s demand for beef is set to increase in the coming years, and Beijing has recently lifted a ban on Brazilian beef. For Brazil’s commodity-dependent and uncompetitive economy, it would come as a boon, giving Brazilian businesses a port on the Pacific, bypassing the Panama Canal. In addition, it would provide Brazil with easier access to Peru and other markets along the Pacific coast.
The China Development Bank is said to finance the project, with construction done by local firms, but led by the China International Water and Electric Corporation. For Beijing, using local firms is likely to help compensate for the crisis that affects many construction firms at home.
From a Chinese perspective, both the Nicaragua Canal and Trans-Pacific Railroad serve a similar purpose, which may suggest that China pursues both projects as part of a hedging strategy, aware of the risks both undertakings entail.
The bad news is that the Brazilian governments have traditionally cared little about the environment. Yet some analysts have argued that the approximate route can be built by following existing roads and passing through land that has largely been cultivated already. Provided that environmental groups can keep up the pressure, the Amazonian Railway is a tremendous opportunity to physically integrate the region and connect Brazil to the world’s economic center of the 21st century.
Read also:
China’s Silk Road Fund: Towards a Sinocentric Asia
The myth of inward-looking China
How the Chinese-financed Nicaragua Canal would change regional dynamics
Entrevista: “Dinheiro chinês é chance única de integrar fisicamente América Latina”
Photo credit: Roberto Stuckert Filho /PR
