The main piece of "evidence" is a letter of recommendation to be sent in to the region that says "Being of a mixed race, and without much of an accent, could easily pass for a local if need to"

But that, at best, is just suggestive. At worst it's just a piece of casual racism.

Hello! Just know these are suggestions and not my field, but this sounds really interesting and I wanted to help.

Does this recommendation have a date? One possible avenue is to see if your g-grandfather ever traveled to South Africa at all. I wouldn't know where to look either but if you can find an archive of ship registries, it might be possible to see if he ever boarded a ship bound there after the date on the letter and before the end of the war. (This is assuming he took a ship at all, might have already been in South Africa, and if he did that he traveled under his real name). I would assume if he did travel there he'd disembark at Cape Town but of course that's not the only port in SA, you'd be looking at registries from the letter to 1902, a not inconsiderable window. A possibility might be to look at newspapers recording disembarkments, but again the same problem of false names and recording it at all. Also they might be in Afrikaans.

The other avenue I can think of is to prove he might be in the employ of the govt. Again, british history is not my strong point so I don't know if intelligence pre-WWI was handled by the ministry of War, the Foreign Office, or another office entirely, but the records of government documents of the imperial period (in London at least) are pretty good. I know the foreign office has a large archive, I think the war ministry does too. Again, these are humongous archives to comb through looking for intelligence reports from SA during a span of several years, so this is a needle in a haystack approach. And worth noting the document that could conclusively prove your family's history might not be in an english archive at all but a South African one. I have absolutely no knowledge about where they house colonial era documents, and at what "level" (ministerial, colonial administrative, military) this "hiring" document would be, and whether this would be in an English archive or a South African one.

British history is not my field so I definitely am not the best person to ask, and would GLADLY welcome some one to jump in and correct anything here. I might not know of relevant archives that would be perfect for you to look through, but just looking at your problem as an historian, I think it might be easier to prove your g-grandfather was in SA, when he got there and when he left than it is to find proof someone with his name was employed by the govt as a spy during the war.