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MAHALLA EL-KUBRA, Egypt (Reuters) - Like many Egyptians, textile factory worker Magdi el-Aleemy expected the uprising that toppled Hosni Mubarak to change his life. It did, but not for the better.
The firm where he worked for 10 years, like so many other businesses in Egypt, was pummeled when the economy nosedived as investors fled and orders dried up. Aleemy lost his job.
"The revolution did nothing for us," said Aleemy, standing with dozens of others protesting outside his old factory gates in Mahalla el-Kubra, north of Cairo. "We will stay here until or demands are met," he said, drawing a roar of support from others.
Expectations were sky-high when Mubarak was driven out in February. For many, it signaled an end to policies they said lined the pockets of a rich elite at the expense of ordinary Egyptians. Workers expected a swift economic dividend.
Eight months later, disappointment that the dividend has not materialized is fuelling a wave of worker unrest that the military-backed government, wary of provoking fresh political turmoil, is not attempting to suppress forcibly.
Strikes are disrupting production and investment, reducing the resources available to satisfy workers. Comprehensive data for the frequency of strikes could not be obtained, but Nabil Abdel Fattah, analyst at the Al-Ahram Center for Political and Strategic Studies in Cairo, estimated it had almost doubled since Mubarak's ouster.
And if the anger in industrial cities such as Mahalla el-Kubra does not subside, the frustrated aspirations of workers may eventually boil over into a fresh wave of political unrest, say analysts.
"Given the deteriorating economic conditions, and if the government administration remains paralyzed and unable to solve the workers' problems, protests will most likely grow bigger and could lead to another big uprising," said Abdel Fattah.
There are no easy solutions. Many of those on strike work in state-owned factories, but the government has limited means to hike salaries when it forecasts a budget deficit of 8.6 percent of gross domestic product in the financial year to June 2012. Economists say the actual deficit is likely to be bigger.
"The protestors have legitimate demands, their salaries can't meet their needs, but we don't have resources to pay them," Finance Minister Hazem el-Beblawi told reporters after opening a session of Egypt's battered stock market.
Private firms are also feeling the squeeze. Gamal el-Deeb, owner of plant that produces stone for use in construction in the Nile Delta town of Manoufiya, said the economic downturn had slashed the market for his product, forcing him to halt output.
"We have no work. We don't get money and the situation has been miserable for the past six months. I don't get any income yet I am required to pay the salaries of my workers and keep the factory open," Deeb told Reuters.
His 35 workers earn about 30 to 40 pounds ($5-7) daily for six-hour shifts. "The workers need money and get angry with us if we don't pay them regardless of the situation," he said.
Nationwide, experiences like Deeb's are weighing heavily on economic growth; a Reuters poll of analysts published last week predicted gross domestic product would expand by just 1.3 percent in the fiscal year to June 30, 2012 and 3.6 percent next year, after 1.8 percent growth last fiscal year.
Egyptian ceramics firm Lecico warned in August that 2011 might be its worst year since 2004 after second-quarter net profit plunged 80 percent, partly because of a nine-day strike that halted work at Alexandria sanitary ware and tile plants.
This week Egypt's stock market fell to fresh 30-month lows, hit by the threat of a possible strike by brokerage employees. The stock exchange issued a statement saying its head Mohamed Omran had met with traders and discussed their concerns.
Before the anti-Mubarak unrest erupted, the economy was heading for a growth rate of some 6 percent, the rate which analysts estimate Egypt, with 80 million people and youthful demographics, needs to generate enough new employment.
Labor unrest is scaring away both local and foreign investors, who were already fretting about the uncertain political outlook before a November parliamentary election.
Until Mubarak's ouster, foreign direct investment was a pillar of the economy. In the 2007-2008 financial year, FDI exceeded $13 billion. It dropped to half that in the global financial crisis, but still was stronger than in many other emerging economies of similar size. Now money is flowing out; the central bank's reserves have dropped by about $12 billion since early this year to $24.01 billion in September.
Simon Williams, Middle East economist at HSBC, said some investors were looking to place long-term funds in Egypt.
"But with economic performance still weak, industrial action heightened and the political outlook so uncertain, only a few are persuaded that they must invest now," he said, adding that the weak global outlook was adding to Egypt's challenges.
In a bid to contain labor disputes and respond to public calls for social equality, the government hiked the minimum wage to 708 Egyptian pounds a month from 422.20 pounds in July.
Labor Ministry spokesman Alaa Awad said the minimum wage had been implemented across state firms. But he also said the ministry would not talk with strikers who disrupted output.
"The minister said there would be no talks with a protesting worker who is delaying production. He has to return to work before entering in any talks with the state," he said.
Unions say the new minimum wage is still too low. Ahmed Abdel Zaher, the acting head of Egypt's Workers Union, said that in practice, many factory workers still earned even less than the old minimum wage.
"The workers are asking for better, more fairly distributed pay and better work conditions. The government is very slow in responding to those demands, which will eventually lead to more unrest and more instability," said Zaher.
The Workers Union during Mubarak's 30-year-rule was seen, like most public bodies, as an ally of the ruling National Democratic Party. That has changed. Zaher took over as acting union head after his predecessor went on trial for corruption.
According to activists and members of the Union, there are at least 3 million people registered as workers in Egypt, with around 360,000 in the public sector.
"They certainly have the ability to attract many other sectors of the low-middle class who are the majority of the people, and this could lead to a bigger uprising than the past one," said Al-Ahram's Abdel Fattah.
Even in Mubarak's time, workers showed readiness to challenge employers; strikes occurred in Mahalla el-Kubra in 2006 and 2008. But at that time, the state had more money in its coffers so it could offer wage hikes, and it had a strong police force that came down hard on protests.
Now there may be little respite for the government through next year or longer. Nagi Rashad, a union member employed by the state's South Cairo & Giza Mills & Bakeries, said laborers needed new laws "to prevent company owners mistreating us or abusing our rights."
"We will keep protesting until that happens," he added.
Additional reporting by Tamim Elyan; Editing by Edmund Blair and Andrew Torchia