July 13 (Bloomberg) -- Five years ago, a trip to Medellin, Colombia, by Wall Street banker Rupert Stebbings meant bodyguards, police roadblocks, and fear of kidnap. In 2005, he decided the city had become safe enough for his wife and son to live there.

``It's like night and day,'' says Stebbings, 40, who worked at Deutsche Bank AG in New York before moving to Medellin-based brokerage Asesores en Valores SA. ``It was a terrifyingly dangerous place back then. I couldn't go anywhere without a car; now I just hop on my moped.''

Medellin, which gained notoriety in the 1980s as the base of Pablo Escobar's drug cartel, has morphed from a city that foreigners avoided into a magnet for investors betting on companies such as Bancolombia SA, Colombia's biggest bank, and Suramericana de Inversiones SA, the country's largest insurance holding company. To create an investment-friendly environment, the city government is encouraging construction, improving transportation, and providing business credits for the poor.

``We want to create a culture that encourages people to be entrepreneurs,'' says Medellin Mayor Sergio Fajardo. ``That's what will bring in foreign investors.''

Foreign direct investment in the city climbed 16 percent to $44.7 million in 2004 from 2002, according to Fajardo's office. Building permits doubled from 2002 to 2005, while exports, mainly of textiles and flowers, from Antioquia province, where the city is based, have multiplied almost two-fold since 2000.

Banks, Textiles

Nestled between mountains in the Aburra Valley and 400 kilometers (250 miles) from Bogota, Medellin is home to the nation's biggest retail, banking and textile companies. Medellin-based companies have a combined weighting of about 69 percent in Colombia's benchmark stock index.

``Not a day goes by when portfolio managers don't phone and ask about investment here,'' says Stebbings, who advises investors interested in buying shares of Almacenes Exito SA, the largest retailer, and Grupo Nacional de Chocolates SA, the biggest food group, and other companies based in Medellin.

Many of the city's companies have outperformed Colombia's benchmark stock index, which has gained more than 650 percent as President Alvaro Uribe clamped down on crime and violence after taking office in August 2002. Bancolombia has increased 751 percent, Suramericana 994 percent, and Chocolates 705 percent.

The gains were even bigger until values tumbled in May and June, when higher interest rates in the U.S. reduced the attractiveness of emerging market assets. From May 11 to June 13, Colombia's stock index lost 43 percent of its value. It has since rallied by almost 40 percent.

Decade of Violence

Beset for more than a decade by car bombings, kidnappings and murders, Medellin's homicides fell to 781 in 2005 from 3,722 in 2002, according to the mayor's office. In 1991, when the war between cartels for control of the drug trade was at its height, the city registered 6,349 murders.

``Back then, many companies wanted to move to Bogota,'' says Jorge Londono, 58, chief executive of Bancolombia. ``I am glad we stayed. You can feel the change in Medellin in every aspect of the city.''

The disadvantage of having to travel regularly to Bogota, where Bancolombia also has offices, is outweighed by the benefits of cheaper rent and administration costs, says Londono.

``It's easier to get people to come here now than before because of the perception of the change,'' says Londono. ``Murder and kidnapping are down enormously.''

The number of robberies at Bancolombia branches has dropped from 65 in 1999 to eight in 2004, according to the bank's figures.

Decline in Crime

The turnaround in Medellin reflects a nationwide decline in crime under Uribe, 54, who was re-elected for a second, four- year term on May 28. Uribe was born in Medellin and served as the city's mayor and as the governor of Antioquia. His father was killed 23 years ago during a guerrilla kidnap attempt.

During Uribe's tenure, murders in the whole of Colombia have dropped by 37 percent and kidnappings by 72 percent, spurring a surge in investment and consumer spending that has fueled annual average growth of 4.6 percent.

``Since Uribe came to power, it has become safer and that means the appetite for investment in Medellin is much better,'' says Nicholas Morse, who in March visited companies in the city as he sought investment opportunities for funds he helps manage at Schroder Investment Management. ``It has been a long time since the Escobar days.''

London-based Schroder's funds have $3.3 billion invested in Latin American securities, including Bancolombia.

Grenade Attack

While violence has dropped in Medellin, it hasn't been eliminated. On July 11, a grenade was thrown into a city-center restaurant, killing two people, police said. It was the first attack using explosives in Medellin since August 2004.

Escobar's death in 1993 and Uribe's campaign against drug- financed crime and guerrilla warfare have enabled the city to make a concerted effort to put its past behind, says Fajardo.

``Medellin has a negative brand image of crime and drug trafficking,'' says Fajardo, 50, during an interview at his office in the city center. ``I want to change that brand to one of innovation.''

Clad in jeans and an open-neck blue shirt, Fajardo presents a business card that bears the phrase, ``Medellin: From Fear to Hope.''

Fajardo, who has a doctorate in math from the University of Wisconsin-Madison, is building libraries in the poorest neighborhoods and offering micro credits to shantytown dwellers.

As part of a program to raise the living standards of Medellin's 2.2 million inhabitants, the city has doubled spending on public facilities such as schools in the past three years to $540 million, according to the mayor's office. In 2004 the local government spent about $26.4 million on a cable car service for one of Medellin's poorest and most dangerous hillside shantytowns.

Hillside Slum

The Metro cable runs two kilometers (1.25 miles) from the brown, sewage-reeking Medellin River up the side of the hill that houses the comuna nororiental slum.

``This has totally changed our lives,'' says Jorge Caro Flores, 26, who describes himself as a former gun-toting member of a criminal gang. ``The cable has given us pride,'' says Caro Flores, who now sells fruit to commuters at one of the cable- car's stations.

The government plans to spend $38 million to build a 2.7 kilometer cable car in another hillside slum by the end of 2007.

The legacy of Pablo Escobar, whose policy of giving opponents the choice of plata o plomo -- a payoff or a bullet -- filled the city's police force and courts with corrupt officials, still lingers in parts of Medellin.

Safe Houses

Buildings the drug lord used as safe houses, including the terraced house from which he was trying to escape when he was shot dead by police, still stand. Boarded up and abandoned, souvenir hunters have stripped the buildings of door handles and letter boxes.

One of the city's poorest neighborhoods is known as Barrio Pablo Escobar in recognition of his donation of its simple houses. Escobar is also credited with funding a soccer stadium and a hospital.

In some of the barrio's homes, Escobar's photograph hangs alongside those of family members.

``He wasn't the monster everyone thought he was,'' says Teresa Jimenez, 70, holding a framed photo of Escobar against her heart in the two-roomed shack she shares with five relatives. ``We love him; he gave us a roof and food when no one else would. For us, Pablo Escobar is Medellin.''

Mall Expansion

At El Tesoro shopping mall, about 5 kilometers across town from comuna nororiental, Gonzalo Ramirez is one of a group of investors who plan to spend $50 million on expanding the 110,000 square meters (1.18 million square feet) of retail space by 20,000 square meters. The 100-strong group, which includes many of the mall's shop owners, also intends to build a $20 million hotel on an adjacent plot of land.

The mall, where a bomb exploded in 2000 and killed one shopper, caters to some of Medellin's wealthiest residents, says Ramirez. In the past six years, monthly sales have doubled to about $4 million a month.

``People were afraid to go to crowded places like malls and cinemas before Uribe; they were so often blown up,'' says Ramirez, 45, who attributes 85 percent of the increase in sales to improved security.

To contact the reporter on this story: Helen Murphy in Bogota at hmurphy1@bloomberg.net

Last Updated: July 13, 2006 00:03 EDT