Abstract
Even though the informal sector is the largest contributor to African economies, very little empirical research has been done on determinants of and barriers to product innovation in the informal sector. The study assessed how informal businesses overcome barriers to product innovation by econometric analysis of 996 informal enterprises in a township in KwaZulu-Natal Province in South Africa. Analysis showed a significant positive relationship between technological challenges and product innovation, but a significant negative relationship between social challenges and product innovation. Also, there was a significant positive relationship between percentage of family members in the business and product innovation, but a significant negative relationship between educational qualifications and product innovation. The study concludes that, based on their high level of flexibility due to their smallness, proximity to another and to their customers, these informal sector businesses found suitable alternatives to their technology related barriers.