“Development programs are often the only route small businesses have to scale up.”
In this interview, Mfundo Mvundula, 265 Energy CEO, talks about the company’s journey to increase adoption of LPG, development partnerships, and the current state of Malawi’s economy.
265 Energy is the only distributor of liquefied petroleum gas (LPG) in Malawi with billboards and TV commercials. Their successful #switchtogas campaign is the result of a performance-based grant awarded by the Modern Cooking for Healthy Forests (MCHF) project. In just one year, the firm has converted thousands of urban households to affordable LPG solutions and drastically reduced their use of illegal charcoal for cooking and heating.
Over the last year, how many people has 265 Energy converted to LPG and how was the experience?
We converted over 5,000 urban households, which means over 20,000 people. In the process, our office became a classroom since we promised every customer that we would train them on the product. Everyday, we showed families how LPG is safe for cooking. Our cylinders are affordable, but they are not cheap. Every cylinder is ISO certified and has a series of safety certificates. If we flood the market with inferior products, it would only prove to everyone that gas is dangerous. In-person training really catapulted us forward in terms of customers who wanted to switch to gas.
Do these customers continue to use gas, and what does that mean for LPG market growth?
Customers continue to refill the cylinders. Thankfully, the cost to refill a 3kg cylinder is still affordable, around 9700 kwacha. It’s cheaper than charcoal, and as the rainy season comes, we will see the demand increase. Today there are over 90 LPG outlets in Malawi, meaning more people are closer to refill sites. Since 2018, our business has grown exponentially, and the industry has grown. We have surpassed 30,000 customers. Thanks in part to the grant provided by the Modern Cooking for Healthy Forests project, we doubled our annual revenue in 2023.
How do partnerships in the development aid sector help?
When it does not make financial sense to borrow money, development programs are critical to small businesses, providing almost the only route to try to scale up. With MCHF, we have the opportunity to prove ourselves. We have met our commitments, which makes it easy for them to continue supporting us. Not just with grant funding, but with marketing and outreach events like cooking demonstrations, and through access to more development partners. The partnership creates synergy. It’s more than just monetary, it’s business support and collaboration.
What are some examples of how this synergy has benefited 265 Energy?
For example, through MCHF, we were introduced to a platform called Payment Solutions Malawi, which administers payroll for all public servants on behalf of the Government. Through their service, public sector employees can make purchases through payroll deduction installments, and their pay is debit directly and remitted to us. We also improved our relationship with Standard Bank, who helped us source and procure cylinders and appliances from suppliers.
What role does USAID play in improving the business environment?
Since the beginning, the USAID-funded PERFORM project and now USAID and UKaid co-funded MCHF project have played a significant role. Their facilitation of the National Cookstove Steering Committee gave us a place where our voice could be heard. I remember the committee brought the Minister of Energy into a meeting and I was able to tell him directly what types of problems small LPG distributors face in licensing and regulation.
MCHF has lobbied for tax incentives to reduce the costs to consumers.
That’s right. In late-2019 the government removed VAT and duty on gas and cylinders. And then we told them it is still difficult to convince a household to convert to LPG with just a cylinder. There are appliances and components needed to cook on LPG. And with MCHF support, in 2023, the Government removed duty on gas cooking appliances and accessories. These tax incentives really helped us and other LPG companies to grow in recent years, while making LPG cheaper to consumers. And this is how we managed to bring in the most affordable gas cylinder in the country.
Have these changes increased competition in the sector?
Yes, significantly. There is more competition in the market but there’s a saying that the rising water raises all ships. By having more gas importers and distributors, other companies are actively converting more people to gas. Today, the market has tripled in three years and will continue to multiply. With that kind of growth, we couldn’t do it alone. New players help carry the conversation around gas and persuade customers to try it. As a company, it’s our job to ensure we have superior products and customer service to compete in the marketplace.
How has a downturn in the economy affected Malawi and energy providers?
The economy has really nosedived. Malawi is not producing and exporting enough, and the trade balance is off. Malawi is an importing nation, and that includes energy: petrol, diesel, gas, and solar power systems. The devaluation of the kwacha has a significant impact on households, increasing their day-to-day costs, and impacting their decision to switch to different energies.
How does the devaluation of the currency affect your customers?
The Kwacha has experienced a 44% devaluation, and this affects the affordability of everything the end consumer goes to purchase. Essentially, all Malawians got 44% poorer if they do business in the world economy. For the rest of the population, they receive the same pay as before, but it does not go as far. For our company, we cannot increase the price by 44%. No customers will come into my shop. If we adjust our prices to the devaluation, our entry market product, the 3 kg cylinder with a stove top, which costs $30 USD, would go from 35,000 to 51,000 Kwacha.
Is it hard to do business in Malawi?
Operating in this environment, you have to expect the worst. So you have to see your position and pivot. We sold our stock of 5,200 three kilogram LPG cylinders in a record eight months before the devaluation, and now we have to procure more. But we also need to plan for the next economic shock. The cost of money is high and increasing. Also the energy sector is capital intensive and requires finance, but commercial interest rates in 2023 rose from 22% to 34%. When you calculate corporate taxes and the devaluation, you are dangerously close to negative profitability.
Will LPG continue to be seen as a viable cooking energy in the future?
Despite the economic challenges we feel there is a lot of opportunity in Malawi, and we see 265 Energy as a thought leader in the LPG space. We have pushed down barriers and paved the road for this product as an affordable cooking energy solution. We like to be first. We were first to bring door-to-door delivery service, and the first company to brand our cylinders and accessories. We like to be the pioneers, and know that our brand is trusted. The Malawian public is welcoming us with open arms, and I’m confident we can still grow and reach more customers.
