Using qualitative case study, and unique firm-level survey data in Ghana and Tanzania collected between 2013 and 2015, this chapter analyses the nature and the sources of innovation in both formal and informal sectors. Also, the chapter explores the learning processes underlying innovations as well the various institutional constraints underlying these innovations in Ghana and Tanzania. Our analyses reveal that innovation occurs just about anywhere in Ghana and Tanzania, and innovation is widespread across all sectors, including formal and informal sectors. Our results also show that firms engage in multiple incremental innovations at the same time, enabling firms to gain complementary effects. Knowledge spillover, imitation and adaptation were identified as the main mechanisms through which knowledge is transferred for innovation activities in Ghana and Tanzania.