Arabs like to say that they practically invented storytelling. But the reality is that the Arabic novel has remained on the margins of world literature probably since the end of the Abbasid golden age.
I don't know who these bragging Arabs are the author knows, but I know the Arab novel must have been on the margins in the Abbasid age considering no such thing as a novel--or world literature, for that matter--existed then (the novel as a literary form developed in Europe in the 18th century and wasn't common in the Arab world until the twentieth).
The author goes on to invoke every stale cliché possible. You've heard that one about books being "written in Cairo, published in Beirut and read in Bagdad," right? And then there's the inevitable comparison of Classical Arabic to Middle English.
The most sophisticated, classical Arabic is understood throughout the Arab world, but comes across on the page as somewhat akin to Shakespeare or even Chaucer to modern Anglo-Saxon ears. On the other hand, national dialects travel badly, with Algerian Arabic, for example, emerging as the densest and least intelligible brogue to Gulf readers.
(Yes, dialects can be very different. But literary Arabic is is constant evolution, and while it may be difficult for uneducated people, I don't believe it strikes their or anyone's ears as antiquated).
One of the compromises made famous by such writers as Mahfouz is to write in classical Arabic for the broadest possible Arab audience. But that requires readers to suspend disbelief when the hookers and petty underworld mobsters of old Cairo strut around waxing lyrical as bards.
(This strikes me as a gross mischaracterization of the very subtle melding of Colloquial and Formal that Mahfouz achieved in his dialogue.)
However, perhaps the greatest hurdle to Arab literature is a ubiquitous aversion to reading, which has its roots in the education systems across the region and, more specifically, to the learning by rote imposed on Arab children in their formative years.
Almost everything this article says is the most trite conventional wisdom. There's no mention of the current (modest but still note-worthy) increase in novel-writing and reading across the Arab world--I've seen it in Cairo, where publishers and writers tell me there are bigger audiences for literature than before, and it seems to be taking place in other Arab countries as well. This is partly linked to the international success of a few Arab novels (such as "The Yacoubian Building" and "Girls of Riyadh"), which also go unmentioned. Nor does the article address all the works being written in Colloquial (in Egypt for example there are a lot of blogs being turned into books).
Instead the article links the low numbers of published or translated novels (by the way I am almost sure that statistic comparing publishing in Spain and the Arab world from the Arab Human Development Report has been called into question) to a century-long intellectual and cultural decline. I just don't understand why a discussion of modern Arabic literature has to be framed this way. The equivalent of this article would be something like "European novelists still going strong six centuries after the Renaissance."
It's very hard to make a living as a writer of fiction in the Arab world--audiences are small and can't pay much, copyright is hard to enforce, there are problems with distribution and with censorship. Illiteracy and diglossia can make writing for large audiences challenging--but the different registers of Arabic also offer Arab writers wonderful stylistic opportunities. Arab literature may be "on the margins" for a variety of reasons, but the literary scene in Egypt is vibrant.