Informal sector activities in urban Eritrea are significant contributors to the economy but often operate outside formal legal frameworks. A comparative study approach using qualitative research methods including interviews and document analysis to understand informal sector dynamics and legal frameworks in urban settings. The proportion of informal businesses operating without formal licences is estimated at 40% in Eritrea’s urban areas, highlighting the need for more comprehensive legal protections. Current legal frameworks in Eritrea inadequately support the growth and stability of informal sectors, necessitating policy reforms to improve regulatory clarity and enforcement. Strengthening existing laws with provisions that protect the rights of informal sector workers while also ensuring compliance with broader economic goals.