The groundbreaking ceremony of the Hyundai Nishat vehicle assembly plant at Faisalabad's M-3 Industrial City took place on Wednesday, with local production of vehicles expected to begin within two years.

Hyundai Nishat Motor Ltd signed an investment agreement with the Ministry of Industries and Production under the Automotive Development Policy 2016-21 earlier this week to set up a greenfield project to undertake assembly and sale of passenger and one-tonne commercial vehicles.

The plant is a joint venture between the Hyundai Motor Company and local textile firm Nishat Mills.

Prime Minister Shahid Khaqan Abbasi, while addressing the ceremony, said that despite Pakistan's instabilities and issues over the last few years, "the path to progress has continued. This is manifestation of the trust the investor has in Pakistan's policies."

Abbasi assured attendees that the country was ripe for investment and the investors were beginning to see it. "Pakistan is not what you see on CNN, this is the real Pakistan," he said. "Pakistan is a story of many successes," he added.

He thanked the Hyundai and Nishat groups for collaborating to invest in Pakistan.

Hyundai's return to Pakistan will boost the government's efforts to shake up the Japanese-dominated car market and loosen the grip of Toyota, Honda and Suzuki, who assemble cars in Pakistan with local partners.

Hyundai and South Korea's Kia Motor used to assemble cars in Pakistan until 2004 but withdrew after their local partner Dewan Farooque Motors Limited went bust.

Nishat Mills is a subsidiary of Nishat Group, a giant in the Pakistani banking, textiles, energy and cement sectors.

Last year, French carmaker Renault agreed to invest in a new factory in Pakistan and South Korean carmaker Kia Motor Co said it would start assembling cars in a joint venture with Karachi-listed Lucky Cement, part of the vast conglomerate Yunus Brothers Group.

The government believes increased competition should bring down exceptionally high car prices in Pakistan, and in March it introduced a new auto policy favouring new entrants into the market by offering generous import duties.

The incentives have angered existing market players, some of whom have said publicly they should get similar terms.

Pakistan, with a population of nearly 200 million people, is a potentially huge market, but just 180,000 cars were sold in the 2014/2015 fiscal year. That compares with more than 2 million passenger vehicles a year in neighbouring India.