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Colombia’s Railway Alternative to the Panama Canal
Colombia’s Railway Alternative to the Panama Canal Stamp
April 29, 2011
A Postcard from the Americas
Colombia’s Railway Alternative to the Panama Canal

Colombia’s Railway Alternative to the Panama Canal

Colombia’s ambitious project goes much beyond building a ‘land canal’ to rival the Panama Canal. A new city is planned as an assembly hub for Chinese goods, besides larger ports and new railway lines to ship coal and other materials to China.

The allure of controlling a major trade channel goes beyond the financial gains from the transit fees, though such revenues can be substantial. Throughout history, countries that are close to or have power over major trade routes have benefited from the overall increase in economic activity. In an increasingly globalized world, control of or access to trading routes is even more significant. So, it should not be a surprise that, given the Panama Canal’s economic and strategic significance, other countries in the region have been dreaming about alternate routes to connect the Pacific and the Atlantic coasts.

A grand project aimed at usurping the Panama Canal’s preeminence is slowly taking shape in neighboring Colombia. This one will not be a water way, but a 136 mile long overland railway link that will connect Buenaventura on the country’s Pacific coast and the Atlantic port city of Cartagena. It is envisaged that cargo offloaded on the Pacific side will be transported by rail to the Atlantic coast, for further distribution to the North and South Americas. In the other direction, the railway line will carry coal, iron ore, and other industrial materials, which are in high demand in Asia. Colombian President Juan Manual Santos is backing the project and confirmed recently that it is indeed a real proposal, to be financed by China.

The project’s Chinese backers have far bigger ambitions than building just a railway line to link two coasts. This project is seen as part of a much larger venture to allow easier transportation of industrial resources destined for China and to provide better access to Chinese manufactured goods in the Americas. The Chinese are also funding a substantial expansion of the port at Buenaventura and the construction of a nearly 500 mile long railway line, mostly to facilitate movement of coal to China. Colombia is one of the largest producers of coal in the world, and its coal is considered to be of very high quality. Even more ambitious is the proposal to build a new city, close to Cartagena, that will become a hub for assembling Chinese goods meant for re-export to the rest of Latin America and the United States.

The broad scope and scale of this venture is also seen as part of Chinese efforts to establish economic influence over new and potentially lucrative markets. As wages continue to rise in China, the cost advantage the country has over other exporting nations will narrow and the value proposition of Chinese goods will diminish. Relocating the final assembly of manufactured goods to low-wage locations that are closer to major markets will protect the cost leadership of Chinese manufacturers to some extent.

Colombia will be even happier if the U.S. government wakes up and tries to offset the rising Chinese economic influence in the region. The U.S. remains the country’s biggest trading partner, but Congress is yet to ratify a Free Trade Agreement signed several years earlier and a trade preference program offered by the U.S. also expired earlier this year. The Colombian government recently sent bouquets of roses to lawmakers on Capitol Hill to encourage them to extend the trade program, which offered lower duties on imports from Colombia, including flowers. It is now hoped that the growing Chinese threat will prod the U.S. Congress to ratify the trade deals with Colombia.

For Colombia, roiled by terrorist violence and the growing drug trade for decades, large projects like the inter-oceanic railway link are imperative to propel the economy to a faster and sustainable growth trajectory. The project indeed is incredibly ambitious, and probably never before attempted by relatively small countries. But the audacity of the aspiration itself may become a source of renewed optimism about Colombia’s future.

 

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