* Workers no longer frightened to press for better pay
* Business owners say they're overwhelmed by demands
* Strike wave would deepen Egyptian instability
* Red tape, government indecision stifle business
* Officials scared to approve deals due to graft clampdown
By Asma Alsharif
10TH OF RAMADAN CITY, Egypt, March 25 (Reuters) - Egypt's next president is likely to face a far more complex problem than cracking down on Islamists - meeting the demands of workers desperate for decent jobs and wages.
While the authorities have cowed the Muslim Brotherhood simply by throwing its members behind bars in their thousands, factory employees say they are ready for a fight.
Officials realise workers' demands cannot be ignored as a wave of strikes will compound Egypt's instability just as the new leader - most likely to be army chief Field Marshal Abdel Fattah al-Sisi - struggles to mend the economy.
At the Diamond textile factory near Cairo, staff are determined to win more rights and say the popular uprising that toppled autocrat Hosni Mubarak in 2011 has failed to produce any improvement in social justice.
"For more than 20 years we did not speak or demand our rights," said Essam El-Husseini, who began work at Diamond almost two decades ago and makes only 1,300 Egyptian pounds ($190) a month, barely enough to feed his family.
"Now things have changed, everything is changing ... The fear the people had has evaporated. People are not afraid to stand up anymore. With unity our rights will come."
Factory owners say hostile workers are not their only problem. Political turmoil, Egypt's age-old red tape and government indecision are all stifling business, forcing them to put off expansion plans that could yield bigger profits.
Sisi won widespread popularity for removing Islamist President Mohamed Mursi last July and outlawing his Muslim Brotherhood, 529 members of which were sentenced to death on Monday. Investors hope he can bring stability if, as expected, he runs in presidential elections later this year and wins.
Once in office the new president must tackle daunting problems. While the Brotherhood has been largely crushed, Islamist militants are staging an insurgency, complicating efforts to revive the economy.
Egypt has wobbled through six governments over the past three years. Many tourists and investors have fled the turmoil or simply stayed away, and foreign currency reserves fell to a critical low last year, making the country dependent on aid and loans from conservative monarchies in the Gulf.
Foreign direct investment was $3 billion in the year ending June 2013, $1 billion less than the previous year and far below levels before Mubarak fell.
Saudi Arabia, the United Arab Emirates and Kuwait, have collectively pledged more than $12 billion. But while the armed forces plan a huge housebuilding programme, the money does not seem to be trickling down to factory workers, who have long resented the state they accuse of favouring political and business elites over the poor.
One in four Egyptians lives under the poverty line in slums that fester without proper water supplies and sewerage while the rich live in gated communities of villas overlooking artificial lakes.
Resentment is rife at the Diamond factory in 10th of Ramadan City, an industrial zone that straddles a desert highway leading from Cairo to the Suez Canal. "We know our rights very well and we will stand up for them: a pay rise, social justice and a decent life," said worker Mohamed Salah, who makes 800 pounds a month after five years with Diamond.
The city, named after the anniversary of an Egyptian attack on Israel in 1973, typifies unfulfilled promises of prosperity. Created under President Anwar Sadat in the 1970s with the aim of attracting foreign investment and creating jobs, it has done little to ease residents' sense of deprivation.
"The businessmen we work for are much richer than us, we don't want that big difference any more ... We also have a right to live," Husseini said. "They want us to operate like these machines, just work to make them money. We are prepared to work but they have to be responsive. If they are not we will go back on strike."
Diamond employees have staged three strikes in as many years. The last two won small salary increases which fell short of inflation now at around 10 percent, and workers want more, including a percentage of the profits and health insurance.
Officials at Diamond were unavailable for comment but Ayman Reda, secretary general of a local investors' association, said employers were struggling to meet their workers' expectations.
"Their demands are rising each day. Even those who have good conditions ask why they don't get more," said Reda, who is also managing director of box manufacturer Dice Pack.
"We used to have new companies opening up on a monthly basis and many had expansion plans but all this stopped after a lack of security in the country and worker strikes," he said from behind his desk at the factory he runs.
Egypt's economy grew a meagre 2.1 percent last year - not nearly enough to create jobs for a rapidly expanding population - and the government has cut its growth forecast for the fiscal year ending June 2014 to 2 to 2.5 percent. More than 4,000 factories have closed since the 2011 uprising.
One look around 10th of Ramadan City shows why there is a sense of neglect. Partly paved roads are riddled with pot-holes and surrounded by piles of scrap metal and crumbling sidewalks.
Officials who can improve life seem paralysed by indecision. Since Mubarak's overthrow, dozens have been taken to court on corruption charges or for deals they made while in office.
Due to this hesitation, some areas of the industrial zone seem frozen in time. Gas lines, for instance, remain unconnected to newly established factories even though their owners received approval more than three years ago.
"Officials were accused of corruption. Those who are supposed to find contractors to fix roads and sign agreements and spend money are now afraid to take action," said Medhat Sami, a project manager in a factory in the zone.
Others are also cynical. "Bureaucracy was there since the days of Mubarak and it is still here. But what was added to that now is the fear of decision taking," said Ahmed El Sayed, general manager at Egyptian Engineering Co. Global Glass.
The firm has decided to delay expansion plans until the country has a clear economic plan, not just billions of dollars from the Gulf that depend on the government maintaining good relations with its allies.
Even some of Egypt's biggest investors express frustration with hurdles that have existed for decades.
Mubarak's fall raised expectations that the vast bureaucracy he presided over would eventually be dismantled and business deals would move quickly. That still seems far off.
"Every minister or civil servant is worried to sign and you need a signature to start any project and it has been really a big problem," said Naguib Sawiris, a billionaire and one of Egypt's biggest investors.
Sawiris said officials, anxious to avoid joining their predecessors in jail, were causing paralysis. "The safest way is not to sign. You don't sign (and) nothing happens," he told Reuters in an interview. ($1 = 6.9603 Egyptian Pounds) (Editing by Michael Georgy and David Stamp)