The research firm said Egypt's IT spending will be $2.13 billion in 2012, the third-highest level in the Middle East behind Saudi Arabia's projected $6.98 billion expenditure and the United Arab Emirates' $5.18 billion. The latter both have much smaller populations than the North African state.

Spending this year will be at 2011 levels, although down from a 2010 peak of $2.4 billion.

"There was a significant contraction in Egypt. We could potentially see a pick-up in the second half of 2012, but it all depends on the political situation," Jyoti Lalchandani, an IDC regional vice-president, told Reuters on the sidelines of a news

conference.

"Despite any positive news on the political side, the market cannot recover in 2012, which will see almost flat IT spending. We're down to the 2008, 2009 IT spending levels in Egypt."

The IT slump mirrors a wider malaise which has seen Egypt's economy forecast to grow 1.8 percent in the year to June 30.

That is far short of 6 percent-plus growth rate economists say Egypt needs to start creating enough jobs for its 80 million people, while tourist revenue and foreign investment has plunged following Mubarak's exit and subsequent clashes against the ruling military council.

In Egypt, major IT spending has typically been in the government and financial services sectors which account for 40 percent of total expenditures, Lalchandani said.

"With the developments politically, there are no decision makers making decisions on IT," he said. "As a result, the public sector spend on IT has reduced dramatically in the last couple of years.

"On the banking side, there's a lot more caution given it has been a challenge attracting investments. With these two key sectors out of the way, there's simply no way the Egyptian market can recover and come back."

Across the Middle East, about 20 percent of IT spending is consumer, with the remainder from the public and private sector.

(Editing by David Cowell)

• A Permanent Economic Emergency