Further education has been hailed the driving force behind the regeneration of the Welsh economy. But fears are growing that the sector is failing to produce the highly skilled workforce demanded by foreign investors in Wales.

Manufacturing, engineering and automotive companies in North and South Wales are suffering from a chronic shortage of engineers and technicians, computer operators and maintenance fitters, according to the Confederation of British Industry in Wales.

"This is a problem which has not been adequately addressed. Although further and higher education have made great efforts, they are nowhere near solving it," said John Phillips, chairman of the CBI Wales' education and training committee. Gavin Thomas, consultant at Fforwm, the Welsh Association of Further Education Colleges, agrees: "Despite the success Wales has had in attracting foreign investment, companies are having trouble finding skilled technicians. Further education is well placed to do something about this."

The CBI, Fforwm, and schools, colleges, and universities are looking to the new national assembly for Wales, whose members are due to be elected next May, to take the lead on the skills issue.

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John McDowall, executive director of British Steel and a member of the ETAG board, said: "We need to raise the basic level of education in its quality, standards and the skill sets that pupils achieve and instill in them the idea of lifelong learning."

Despite the flaws in the further education system, colleges have been working hard in the past five years to improve their standards and reach out to ever greater numbers of potential students. Student enrolments at Wales's 26 further education colleges have more than doubled to 288,193 in the three years to 1996-97. Higher education in further education colleges has also been an area of huge expansion: by 1997-98, 6,240 students had enrolled on vocational higher education courses compared with just 949 in 1993/94.

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In a bid to spur colleges and universities to work together, the Further and Higher Education Funding Councils have launched a Pounds 1 million fund for building partnerships between further and higher education.

Each partnership - which must include a college and a university - is invited to bid for money to make learning available to people who are not currently studying.

John Andrews, chairman of the Further Education Funding Council for Wales, said the council had put its case for more funding per student to Peter Hain, the education minister for Wales.

"We are looking for developments which will strengthen collaboration and establish long-term links which will offer learners and potential learners, enhanced opportunities for lifelong learning."

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Colleges wanted to fight social exclusion in the Welsh valleys, combat the lack of basic skills and produce outreach programmes to the local estates. "There is a major willingness in colleges to tackle these issues but the current funding levels are holding this back," Professor Andrews said.