One look at the impressive new Falkland Islands Community School in Port Stanley tells you all you need to know about the healthy state of the local economy.

It has a teacher/pupil ratio of 7 to 1 and a supply of computers that would make most head teachers in Britain green with envy.

Yet it could have been very different for today's young generation without the Falklands conflict back in 1982.

Before the war the island depended almost exclusively on wool. Nearly all the farms were owned by British-based companies who didn't re-invest their profits.

Islanders had to either work for these companies or leave. They couldn't own their own farms because none became available, so thousands emigrated to New Zealand and Patagonia and the Falklands stagnated.

Peter Pepper, co-editor of the Falkland Islands newsletter, said: `There was a haemorrhaging of talent that the island could ill afford to lose.'

During that time there was little development and the population dwindled.

But then came the war and the fortunes of the Falklands were transformed. To help the people get back on their feet, the British government made a gift of £31m and Jersey also donated several million pounds.

Suddenly islanders could get attractive loans. They bought out absentee-owned farms and became their own masters.

Then in 1986 Britain declared a fishing zone around the Falklands. Islanders began selling fishing licences worth £20m a year for an area of water rich in squid, a delicacy in the far east and Spain.

Now the islanders had their own income and could begin building infrastructure.

The school was built and roads were carved out of the landscape. Previously transport was by horseback and then by Land Rover bouncing up the bridle paths.

A new dock complex was constructed and provided valuable employment. Islanders also went into joint partnership with a fleet of fishing boats owned by licence holders.

The shape of things to come? The thriving dock complex

Argentina has since tried selling its own cheap fishing licences to rob the Falklands of trade, but islanders are still making £12-£13m a year out of licensing.

To get an idea of how big turnover can be, one Falklands company, Consolidated Fisheries, paid taxes of £500,000 last year.

Tourism has taken off, with lodges built to enable visitors to watch wildlife including sealions and penguins. Passing cruise liners also drop anchor.

Mr Pepper said: `It is quite a thriving place now, there is no doubt about that. The gains have been quite considerable, it is developing rapidly and islanders are taking responsibility for their own affairs.'

But all that has happened so far could be completely eclipsed if oil is discovered off the islands. Next year test drilling begins in an area that experts believe could prove to be half as big as the North Sea oilfields. If it is found to be oil-rich, revenue could run into literally billions of pounds.

But Mr Pepper, a geologist by profession who hails from Gosport, warned that this could harm the island if handled wrongly.

`They'll have to be careful. If the Falklands turned into another Kuwait, it would be a disaster. Oil money could destroy the social fabric.

`But there is no indication that anybody would be profligate. I suspect the islanders would be wise with the revenue and a large proportion would come to Britain for various causes.'

End of the war
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