Frozen investments and cancelled factories are hurting a major Mexican industrial hub on the US border as nervous business leaders watch police and troops do battle with brutal drug gangs.

Ciudad Juarez, a manufacturing centre and for many years a party town for US tourists, is posing President Felipe Calderon’s toughest test since he launched his military-backed crackdown on drug gangs in late 2006. The city, which lies across from El Paso, Texas, has become one of the world’s most violent, with 5,500 drug-related killings in just 2-1/2 years.

Empty restaurants and desolate parking lots strewn with rubbish show how the bloodshed has crippled the local economy.

Bird droppings cover the marble steps of the city’s pyramid-shaped Sphinx nightclub and a huge “for sale” sign hangs outside. Dentists that catered to Americans seeking cut-rate dental care south of the border are shuttered.

Piles of rubble sit where craft shops and 24-hour bars used to stand as local authorities bulldoze entire buildings to prevent them becoming crime dens. US tourists who used to come on day trips for a taste of Mexico now avoid the city.

Police chiefs say they have reduced drug killings to just over 200 in May, down from almost 300 in October, and aim to bring drug gang crime under control by using improved intelligence to catch hitmen and purge corrupt police forces.

“We were fighting an anonymous enemy,” said General Victor Gutierrez, head of Ciudad Juarez’s police force. “But the rats are fleeing and we hope that by October, November we will have control,” he said, waving his cell phone after taking a call with news of the latest drug murder in a city shantytown.

But businesses say the insecurity is strangling a revival as the world economy pulls out of recession. Ciudad Juarez, which with El Paso handled $50 billion in border trade in 2008, suffered sharply last year, losing 75,000 manufacturing jobs.

“We are seeing a recovery but we are not increasing new investment flows as we hoped. Employment is not growing at the rate it should because of the insecurity in the city,” said Carlos Chavira, president of a leading local business group.

He said several US investors in telecoms and electrical goods’ factories had frozen investment or cancelled plans to build new plants in Ciudad Juarez.

“We’ve generated 7,000 jobs this year but if it wasn’t for the insecurity we would probably be at double that level.”

Fighting Back

After the army’s failure to bring down the rampant violence in Ciudad Juarez, the government in April handed elite federal police the task of calming the cartel war.

A force of national and city police and thousands of soldiers under federal control is now charged with ending a battle between the Juarez cartel and rival smugglers from the state of Sinaloa that has degenerated into a chaotic fight between drug dealers, cops, and teenage hitmen.

Hotel owners say Ciudad Juarez is still off limits for US executives who used to stay in the city during plant visits.

“We’ve not seen an improvement in security since the federal police took over. Executives still have to stay in El Paso,” said Jorge Ruiz, president of the city’s hotel association. He said hotels have lost 30 million pesos ($2, 4 million) over the past year due to the violence.

In March, gunmen killed two Americans and a Mexican linked to the local US consulate, prompting an outraged response from President Barack Obama. Calderon pledged to do more to stop the bloodshed.

Federal Police Commissioner Facundo Rosas said he sees a clear trend in falling violence and denied reports that Mexico’s top trafficker and head of the Sinaloa alliance, Joaquin “Shorty” Guzman, has won control of Ciudad Juarez.

But he warned against claiming victory over the cartels.

“Whenever that happens, we see these groups trying to show that they’re still in charge,” he told Reuters.

The city is prized by smugglers for its location in the middle of the border and its road and rail links deep into the United States. The city also has a growing pool of addicts.

Rosas says it is only a matter of time before businesses begin to notice improvements as he spends heavily to bolster security.

But city police say they struggle with meagre funds, broken down patrol cars, low morale and few officers on patrol.

“My officers are deserting or have been shot dead. In my sector of the city with 400000 residents, I’ve got just 80 police on patrol at any time,” said sector police chief Laurencio Rodriguez, pointing to a parking lot where 30 of his 47 patrol cars are broken down due to a lack of money for repairs.

Timeline-Events in Mexico’s drug war city Ciudad Juarez

June 16 (Reuters) — Frozen investments and cancelled factories are hurting a major Mexican industrial hub on the US border as nervous business leaders watch a slew of police and troops do battle with brutal drug gangs.

Following is a timeline of the key events in Mexico’s war on drugs in Ciudad Juarez across from El Paso, Texas.

1993 — Drug lord Amado Carrillo Fuentes, known as “The Lord of the Skies” for flying airliners full of Colombian cocaine into Mexico, takes control of the Juarez cartel in the city, smuggling tonnes of narcotics over the border deep into the United States.

1994 — Mexico joins the North American Free Trade Agreement (NAFTA) with the United States and Canada, and opens hundreds of factories in Ciudad Juarez as exports boom. The city’s population jumps as workers from across Mexico seek jobs, but many new arrivals are unable to find work and are sucked into the drug trade.

1997 — Vicente Carrillo Fuentes takes over leadership of the Juarez cartel after his brother Amado dies during a plastic surgery operation in Mexico City.

1998 — Police officers from the Ciudad Juarez force and the surrounding state of Chihuahua move into small-time drug dealing in the border city, forming “La Linea” (The Line). They later become enforcers for the Juarez cartel.

2001 — Joaquin “Shorty” Guzman escapes from a Mexican prison in a laundry van. Mexico’s most-wanted drug lord, he heads a coalition of drug gangs from Sinaloa state and vows after his escape to take control of Mexico’s drug trade.

2006 — Members of a street gang known as “Barrio Azteca” in the United States and “Los Aztecas” (The Aztecs) in Mexico, made up of Mexicans deported to Ciudad Juarez from the United States, align themselves with La Linea. Several other street gangs spring up and move into drug smuggling.

2007 — Vicente Carrillo Fuentes tries to bring order to drug smuggling in the Ciudad Juarez area and gives gangs an ultimatum of six months to come under the umbrella of the Juarez cartel. Some gang members disobey and ally with Guzman, who sends his henchmen to battle the Juarez cartel.

2008 — Drug killings explode in Ciudad Juarez as Sinaloan hitmen fight the Juarez cartel. President Felipe Calderon sends hundreds of soldiers to the city to try to stem Guzman’s the violence, part of the government’s nationwide anti-drug crackdown.

2009 — Drug war violence escalates and cartel kidnappings and extortions soar in Ciudad Juarez. Calderon increases his military deployment to 7000 troops and 3000 federal police.

But the city becomes one of the world’s most violent places, with some 2750 drug killings during the year.

2010 — Hitmen kill 3 people linked to the US consulate in Ciudad Juarez in March, provoking “outrage” from President Barack Obama. Under pressure from accusations of rights abuses by the army, Calderon in April switches control of anti-drug operations to the federal police. In June, police say they are finally seeing success in cutting violence, but business leaders and residents say the shift in strategy has yet to show results.